How much you need to save in your 20s, 30s and 40s

Here’s what you need for a comfortable retirement and what you can do if you started saving too late.

How much money do you need to save for retirement?

Financial advice website Unbiased.co.uk recommends that someone with an average income of around £30,000 will need to put together a pension pot worth around £300,000 to maintain their standard of living in retirement.

However, according to official figures, the average pension amount at retirement is currently around £37,000, suggesting that many workers will face a drastic decline in living standards in retirement.

So how much should you set aside to ensure a comfortable retirement?

We’ve put together some numbers to give you an idea of ​​how much money you’ll need to pay into your pension to maintain your standard of living in retirement.

According to Unbiased.co.uk, in retirement you will need an annual income that is between 50% and 70% of your current income as an employee.

For our figures we have assumed someone on an average wage (around £30,000) who wants to retire at retirement age with an income of around two thirds of their salary, i.e. £20,000.

We have taken into account the full state pension of around £11,502 per year, so the remaining pot would need to generate income of around £8,498 per year.

Find out more about the 2024/2025 state pension and how much it pays.

Start a pension pot in your 20s

The earlier you start, the easier it is to build an adequate pension for retirement.

According to Royal London figures, someone aged 25 who wants to retire on the basis described above would need to make contributions of around 16% (equivalent to £380 per month) towards their pension.

An annual investment growth rate of 4.2% per year is assumed.

That may seem like a lot of money, but remember that if you contribute to a company scheme, your employer will also contribute.

They also receive a top-up from the UK government, meaning that for every £80 a basic rate taxpayer contributes to a pension, the government contributes £20 to top up the pension to £100.

In reality, the amount you pay into the pension is significantly less than 16%.

We also assume investment growth of 4.2%, which is in the middle range.

Since there are still many years left until retirement, your advisor will recommend investing in a variety of assets that have the potential to provide greater returns over time.

Start a pension pot at 30

Delaying retirement for 10 years will have a big impact on how much you need to save each month.

Royal London’s calculations show that someone aged 35 would need to save a whopping 22%, or £540 per month.

Again, it’s worth checking how much your employer is willing to contribute, as that will make a difference.

You may also find that your advisor recommends that you invest in riskier assets to achieve better returns.

But there are other things you can do to improve your position.

The figures are based on retirement at age 68, yet many people choose to work after that date, even on a part-time basis.

Any extra money you can make will make a difference.

It’s also worth taking a look at what other assets you have.

When we talk about retirement, it’s tempting to think of it as just a pension, but other savings can also be used.

If you have ISAs or other investments, these can all be used to supplement your retirement income.

Finally, don’t make the mistake of assuming that you can rely on your partner’s pension or your home.

Start a pension pot at 40

If you haven’t started saving for a pension by age 40, it can be tempting to think you left it too late.

Don’t despair – you still have many years to go until retirement and can still build up a decent amount of wealth.

Figures from Royal London show that if someone started saving for a pension at the age of 45, they would need to set aside 38% of their salary.

This equates to £930 per month.

That’s a huge amount, but remember that you can work longer hours to have more time to save.

It’s also worth taking a look at any pensions you may have accumulated from previous jobs to see how much these might add to your total.

The risk you take in your investment portfolio is extremely important as it is tempting to invest in risky assets that have the potential to provide higher returns.

Unfortunately, such assets can be very volatile, and if they lose value, they may leave a gap in your retirement savings that is difficult to fill.

The most important things to keep in mind

Benefit from employer contributions

Many employers pay far more than the auto-enrollment minimums listed above.

Some employers even match your contributions up to a certain amount, which can have a huge impact on the amount of your pension.

Don’t set and forget pension contribution levels

Increase this regularly – for example with a salary increase.

Don’t take on too much or too little investment risk

Investing in riskier assets can pay off with high investment returns.

However, these shares can also lose value, creating a gap in your pension funding that you may not be able to fill.

Likewise, investing in low-yielding assets will not generate the returns you need to achieve your goals.

Think about your lifestyle

We’ve chosen £300,000 as a good target here, but if you earn less than the average wage you won’t need to save as much to reach your current standard of living.

If you want to do a lot of things in retirement, you may need to save a lot more.

It’s worth speaking to an advisor to find out what your goals are and how to get there.