How much do I need in my pension to retire?
If you're planning for the future, you're probably wondering how much you should be saving for your retirement. Our guide can help you work this out
Key takeaways
The amount needed in a pension differs from person to person, but rules of thumb can help guide your savings and investments
Your desired retirement lifestyle is a key factor in determining how much pension income you’ll need
Retiring earlier means your pension pot needs to last longer, while delaying could increase your overall retirement income
Other income sources, like investments, property, or part-time work, can supplement your pension in retirement
When should you start saving for a pension?
It's never too early – or too late – to start saving for a pension. You may be worried you've put it off for too long and now a pension will either cost too much per month or give you too little in retirement. But you might be surprised at what you could achieve, even with small monthly savings over a few years.
Clearly, the earlier you start saving the more you could build up in your pension pot for old age and the longer it’s invested. But even if you’ve not got around to it yet there could still be plenty of benefit in starting a pension, including tax relief from the government on the money you invest.
How much should I save into my pension?
This will depend on when you start saving into a pension, the age you plan to retire and how much income you’ll need to live when you stop working.
A rule of thumb is to divide the age you start paying into a pension in half and then put that percentage into your pension each year.
For example, if you start paying into a pension aged 25, you would look to save 12.5% of your salary in a pension. If you don’t start a pension until you’re 40 years old, then it would be 20%. For a 25-year-old earning £30,000, this would equate to £3,750 a year or £312.50 a month into your pension.
While this might seem a lot, if you can include employer contributions and government tax relief, it starts to feel more achievable. Starting earlier allows you more time to make contributions and more time for your investments to potentially grow.
How much should I have in my pension pot at my age?
Because everybody is different and there is no definite figure to aim at for retirement, it’s not possible to give precise amounts for how much you should have in your pension pot at a given age.
How much you should have saved by your retirement will often depend on the disposable income you’re used to having, so you can continue to live a similar lifestyle.
The table below gives a ballpark guide for savings by age, but everyone's situation and circumstances will be different so this can only act as a broad guide.
Age | Target pension saved |
|---|---|
30 | One year's salary |
35 | 2 x salary |
40 | 3-4 x salary |
45 | 5-6 x salary |
50 | 5-6 x salary |
55 | 7-8 x salary |
60 | 8-9 x salary |
65 | 9-10 x salary |
67 (or State Pension age) | 10 x salary |
How much do I need to retire?
The best place to start planning for your retirement is to decide on the income you’ll need each year when you stop work. From there you can work out how much you need to have saved – and at what age you can afford to retire.
For example, if you were earning £35,000 per year and can expect to do so until retirement, you may be aiming to retire at age 65. You might be able to set aside £300,000 throughout your career to put towards your retirement but would struggle to save any more than that.
This would mean you would be below the 10-times final salary rule of thumb. By working two more years until the age of 67 you can look forward to a higher income as your pension pot will be covering fewer years and you may also be eligible for the state pension too.
This also gives you two extra years of contributions and potential growth, as your pension would be invested for longer.
Our pensions calculator, which takes into account your age, current pension pot value, monthly contributions and whether you will get the full state pension, can help you determine how much you might receive each year.
Other factors to consider when planning your retirement
As well as the kind of lifestyle you want in retirement, there will be some other factors to consider, especially because life can be unpredictable:
If you want to pass money on to loved ones, it’s worth factoring this into your retirement planning. Some pensions allow you to leave any remaining funds to your beneficiaries tax-efficiently, while others, such as certain annuities, may stop payments when you pass away.
Many people have significant wealth tied up in their home. If you own property, think about whether you’ll want to downsize or release equity to boost your retirement income. Equity release can provide funds, but it reduces the value of what you can pass on.
Potential healthcare expenses can escalate as you get older. If you need long-term care, whether at home or in a care facility, the costs can add up quickly. Having enough in your pension or separate savings can help cover these unexpected expenses.
Don’t forget about other potential income streams, such as investments, rental properties, or part-time work in retirement, as well as your state pension. Factoring these in can help determine how much you really need in your pension pot.
Factors to consider when planning to retire
Leaving a legacy
Your property wealth
Covering future care costs
Other sources of income
How do I start a private pension?
Setting up a personal pension can be quick and simple online with a private pension provider. You can then set up contributions to transfer in old pensions.
You don’t need a financial adviser or broker, but getting expert and impartial advice is a good idea if you're not a confident or experienced investor. People who take financial advice tend to increase their pension wealth.
Private pensions are called ‘defined contribution’ or ‘money purchase’ schemes, which means what you get out will be a function of what you pay in. Our guide explaining private pensionsgives you more information.
Does saving or investing make the most sense?
Whether saving into a cash savings account or investing in equity-linked products, the best option for you will depend on your financial circumstances, age, how long you have until retirement, and your attitude to risk and capacity for loss.
If you were to save in a cash ISA, for example, then you'd be able to access your money when you need it and would be fully in control, but with a lower potential for growth.
With a stocks and shares or equity ISA you’ll usually want to invest your money for as long as possible to see the best returns and ride out the peaks and troughs of the stock market.
If you invest in a pension, you're committed to not touching the money until you're 55 (set to rise to 57 in 2028). You could also benefit from contributions from your employer or government tax relief.
Our guide on whether you should build up a savings account or have a pension can help further.
Personal Finance Expert
Our expert says...
“From how your investments will perform to how your health will hold up, there are so many factors that decide how much pension you will need to retire that it’s not possible to be precise. However, we do know that there are many advantages of putting money away in a pension and the bigger you can build the pot, the more options you’ll have when it comes to retirement. That in itself should give you the focus to look at your pension situation and take any action as necessary.”
Other useful guides
If you’re looking for more information about pensions, we have a host of guides that can help, including:
Compare private pensions with MoneySuperMarket
We have teamed up with our chosen partner MoneyFarm to help you choose the right private pension plan.
They can help you combine your old pensions into one, easy-to-manage plan, if it's in your best interests, and they will choose the best investment plan for you, using funds from the whole of the market.
You will also get your own dedicated Pension Adviser to answer any questions you have. If you need help tracing a lost pension or want them to check for any penalties or benefits, they can also do that for you, for a one-off fee of 1% of your pension value (taken at transfer from your pension pot).
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