The young generation expects or wants to have at least £100,000 in their pension savings for retirement; however, more than 50% of them haven’t started saving for it yet.
According to a research on retirement conducted by specialists of NOW: Pension, among those who are below 35 years old and are actually savings, their average contribution is just £22 monthly — which leaves them short of their target pension savings.
How much exactly do you need to save in order to generate a decent income for retirement without asking for a cash advance?
Do the Math
If you are paying £22 a month on your pension, your savings would be about £18,000 after 3 decades, assuming there is a 5% annual investment growth. Those who started in their 20s and saved for 4 decades would have a larger savings of £56,500.
In order to reach a £100,000 pension savings, savers should set aside about £70 per month if they are planning to save for more than 4 decades, increasing to about £120 for 3 decades, assuming there is a 5% yearly growth. If you are just 2 decades from retirement, you should save £250 monthly in order to reach the pension savings target of £100,000. If they are just a decade away from retirement, they’d have to save £650 a month.
The chief executive of NOW: Pension, Morten Nilsson, said, “The sooner you start saving and the more you set aside each month, the easier it will be.”
This is primarily because your early contributions would have longer time to grow in terms of value than those that are made during the later portion of their career. But is £100,000 enough for retirement by that time?
Problems in Pension
You may be shocked if you discover how much pension you need to save for just a basic salary.
According to Nilsson, “While £100,000 seems a healthy amount, men aged 25 today are likely to live until they are 88 and women to 91, which means this pot has to fund around two decades of retirement.”
“The result is that even a £100,000 pension pot will not buy you riches. If used to buy an annuity it would secure you a fixed income of between £5,000 and £6,000 a year,” Nilsson added.
If you’re eligible for the maximum basic state pension which is currently about £6,000 annually for an individual, this will take your average income to £12,000 at most. This, in turn, is less than half the average national salary for full-time employment which is £27,000.
The Gap in Luxury
One thing that will be in your favor is that the cost of living is potentially lower during retirement.
MGM Advantage’s pensions technical director, Andrew Tully, says, “Hopefully you will have paid off your mortgage and will not have any commuting costs, but you still will not be living a life of luxury.”
The good news, however, is that the Government will give 20-45% tax-relief on your pension savings based on your personal rate.