It’s never too late to start saving for retirement even if the big day is less than a decade away. How much you will need to save will depend on the number of years until retirement and the desired retirement income.
Saving Before Retirement
There are a number of factors to consider when it comes to saving for retirement. Factors will include how many years until retirement, the expected age of retirement and present income. The reality for many people is that present finances prevent them from actually saving any money for the retirement years. Employees should always opt into occupational pension schemes as required savings will be less when employers have to contribute to pensions.
Start Saving, The Earlier the Better
A state pension does not stretch very far come retirement; at present it works out at £95.25 for a single person. Assuming that mortgages have been paid by retirement age this still does not leave much to pay for living expenses and utility bills. The rising cost of living has to be taken into account. Having a comfortable standard during retirement means saving as soon as possible to build up that pension fund.
How Much Should Be Saved From A Salary?
A pension fund started by a 25 year old saving £200 per month will yield around £11,000 to buy an annuity at 65. That £11,000 figure will decrease by around 20% simply by waiting another five years to begin saving. Those looking for a comfortable retirement should try to save at least 15% of their annual salary every year from the age of 25. A 40 year old looking to start a pension fund should be looking to save anywhere between 17% and 24% of their annual income.
Safely Investing Retirement Money
How much will actually be available on retirement will also come down to the performance of the investments. Financial advisors claim that equities are the best bet for younger savers. Equities can be a risky option but over time the rewards should be greater. Fixed income financial products are more reliable for savers who are nearing retirement.
Saving for a £10,000 Retirement Fund
Although a £10,000 per year retirement income does not sound like much it does take over £149 per month in savings to achieve from the age of 30. Wait another 10 years until the age of 40 and £290 will have to be saved every month. By age 50 savers will need to squirrel away a whopping £661 every month to achieve the £10,000 per year income. This £10,000 per year may of course be topped up by the state pension which can bring the income total to just under £15,000 per year.
How Much Money Will be Needed During Retirement?
How much money to save will depend on how comfortable you wish the retirement years to be. Look at present income, where the money actually goes, and compare this to the projected retirement income. There will of course be some financial differences to remember such as future expected salary increases. Most people will also be looking to have their mortgage paid by retirement and this will make a difference to monthly outgoings. Retirement can stretch for around 30 years so financial preparation is vital to ensure a comfortable retirement.
Working Longer to Save For Retirement
Working well into later life is a financial reality for a great number of people. It is a telling statistic that around 50% of UK adults between the age of 20 and 60 have no actual pension funds in place. At present, forced retirement is still a reality, which would be a severe financial blow for anyone without a pension pot. At the age of 30 an employee will have to save £330 per month to achieve a pension fund of £5,000 per year come retirement. The savings amount does of course increase the closer retirement looms.
Factors That Will Determine Pension Funds
There are variables when it comes to how much to save for retirement and these will include:
- Are employers contributing to an occupational pension?
- Are pension investments underperforming?
- Are pension managers overcharging in terms of fees?
- Are savings increasing every year in line with inflation?
- Is the pension amount determined by final salary?
- How many years until retirement?
- The income actually desired during retirement years
Saving money for retirement may seem like an unaffordable luxury, especially when finances are stretched. At 30 years old retirement may seem a vague future idea but by 50 the time to save for a pension is running short. Saving sooner rather than later is the wise option and will make a big financial difference during retirement.