The importance of saving a healthy pension pot cannot be overstated, but knowing exactly how much you need and by what age can be difficult. There is no single correct amount people need to achieve by certain ages, but there are basic trends they should strive to reach. However, following the publication of Pension UK's updated Retirement Living Standards (RLS) report, most Brits are far from hitting their savings goals.
Retirement Living Standards
The report shows that under a quarter of people are predicted to have a moderate standard of living in retirement. A moderate lifestyle costs £32,700 for one person and £45,400 for two, while a comfortable lifestyle costs £45,400 and £62,700 respectively. Pension UK expects around 82% of the working population to reach the minimum standard of living in retirement. However, this falls to just 23% reaching a moderate standard and 9% reaching comfortable.
How to Save Your Pension Pot
One commonly used rule of thumb is to have pension savings equal to a multiple of your annual salary. Therefore, you should have 1x your annual salary at age 30, 3x at age 40, 6x at age 50, 8-10x at age 60, and at retirement (around 67), 10-12x your annual salary saved in a pension. For example, if you earn £50,000 per year: at 30 - £50,000; at 40 - £150,000; at 50 - £300,000; at 60 - £400,000 to £500,000.
How Much Should I Have in My Pension by Age 30?
By age 30, having roughly £50,000 in your pension puts you ahead of many people and generally on track for a comfortable retirement if you continue contributing consistently. If your pot is closer to £20,000 to £30,000, that is not necessarily a problem. Many people do not begin saving seriously until their mid-to-late 20s. The most important thing at this stage is the habit of regular contributions rather than the absolute size of the pot.
How Much Should I Have in My Pension by Age 40?
By age 40, a pension pot of approximately £150,000 suggests you are accumulating wealth at a pace that could support a comfortable retirement. If you have £75,000 to £100,000, you are still making decent progress, especially if your earnings have increased recently and you are contributing more than you did in your 20s. There is still plenty of time, often 25 years or more until retirement, to benefit from compound growth.
How Much Should I Have in My Pension by Age 50?
By age 50, a pot of around £300,000 generally indicates that you are on track for a comfortable retirement. If your pension is closer to £175,000 to £250,000, you may still achieve your goals, but this is the stage where increasing contributions can have a significant impact. Many people reach their peak earning years in their 50s, making it a good time to accelerate saving.
How Much Should I Have in My Pension by Age 60?
By age 60, a pension pot of approximately £500,000 is often considered a strong position for someone planning to retire in their mid-to-late 60s. If your balance is around £350,000 to £400,000, you are still in a reasonable position. Depending on your retirement date, contribution levels, and investment performance, your pension may continue growing significantly over the next several years.
Expert Advice
Zoe Alexander, executive director of policy and advocacy at Pension UK, said: "It is expected that around 82% of people will reach a minimum standard of living, but far fewer will go beyond that. That is out of step with what people expect for their future. Without action, too many risk facing a cliff-edge drop in income when they stop work. The Government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission. In the meantime, tools like the RLS play a crucial role by helping people take control and understand what they might need, so they can put more money away where and when they can. We also encourage people to speak to their employer and see whether the organisation is prepared to support them to save above the minimum, such as higher rates of matching pension contributions. This could help bridge the gap until policy catches up and we see higher savings levels set in legislation."
