How much should you save for retirement?

vaporate

Dear Members,

Although I am only 23 years old, I am very interested in the theoretical savings one should have by say 65+?

How much should one have in a savings account to have a good retirement. I know its very vague but what is average?

Regards

Arthurian

Lots of useful tips on the pensions section of this site, for example:-
http://www.moneysavingexpert.com/savings/discount-pensions#howmuch

where Martin's rule of thumb is "Take the age you start your pension and halve it.
Put this percentage of your salary aside each year until you retire."

and here's a calculator from The Guardian
http://money.guardian.co.uk/calculator/form/0,1456,603163,00.html

And if you really want to pin it down to an actual figure, no matter how much of a useless guess this is, I remember being impressed by a newspaper article ten years ago which suggested then that a figure of £350,000 was needed for a reasonable pension pot. (Adjust for inflation on an ongoing basis.)

Rafter

Vaporate,

It all depends on how much you want to 'earn' in your retirement, how long you plan to live and how long you plan to work.

If you want to retire today and you are 65 years old and you want an income of £30,000 a year then you would need a fund of £726,000 if you are female and £654,000 if you are male.

How much you would have to save to get to that size fund depends on what investment returns you earn, what rates you contribute and whether your employer contributes too.

The other option is work for the public sector for 40 years and retire when you earn over £40k - then you get a defined benefit pension for life. That is as long as the government can afford it by then!

Things you need to think about.....

We could all be living to 100 by the time you retire.... in which case you will be retiring in your 80's at the earliest based on the current retirement age and life expectancy.

You might not need as much income in retirement because you will hopefully have paid off your mortgage by then.

You may want a larger sum when you first retire and are healthy and fit and can enjoy it, which then reduces as you get older and probably can't travel and do other stuff as much.

Good luck

R.

vaporate

Thank you for your advice. With the recession and everything, even at 23, I feel I need to do what I can and save where I can.

Many thanks again.

Regards

greenface

rafter good advice but i "plan to live" forever and hope i do too.

dunstonh

At age 23 your state retirement age is 68. (probably be 70 by the time you get there but its 68 at the moment). So, not only are you funding for retirement, you are also funding for early retirement as the approx £5k-7k state pension (in todays terms) wont be payable until 68 at the earliest. You will need to fund that gap.

Generally, a rule of thumb is that 5% income is always achievable. So, if you wanted £20,000 a year you would need a pot of £400k.

The rate of return you use should be consistent with your risk profile. For example, if you use cash savings then you should calculate on the basis of no growth. If you use cautious investments then there is no point using a higher assumed growth rate but use a lower one.

Once you know the type of investments you will be using you can use an assumed growth rate, factor in inflation and the number of years until you retire to get your target figure.

In your case, you mention savings accounts. So, its easy for you as you assume no growth at all. If you want a pot in real terms of £400k then you will have to save £400k not including interest. At age 23 to 68 thats 45 years and would require a monthly saving of £740.

A scary figure for many but then thats why people tend not to use cash savings accounts for retirement planning. Its unrealistic to do so.

vaporate

Very scary indeed. If possible, I'd rather work as much as I can, though that's easy to say now, as well as the threat of possible age discrimination.

In addition, it may be immature to say so but I also do not plan on having kids. I'm dead set against it. I know what it entails financially and oh boy...

Regards

JoeCrystal

Still, which made me to consider, is there a good benchmark percentage of your salary you should put into the pension?

@vaporate Well... you know how best laid plans do not often work when put into action.

vaporate

Joe: Trust me, from what my parents, and many others in the UK, go through money wise, I'll skip the kid saga haha.

With the recession I don't see why people should just buy a cruiser, houseboat, slap it on the thames with a personal loan on it and live more cheaper lol.

Rafter

60 million houseboats on the thames would make it worse for congestion than the M25!

R.

juicyjude

Hi could you clarify something for me please Dunstonh. What do you mean when you say at 23 your retirement age is 68. I thought men got state pension after 65, women on a sliding scale. Thanks for your info on this in anticipation