No matter how young you are, it’s important to plan for your future - you’ll be glad that you did.
It’s hard to know exactly how much you’ll need in later life because everyone has different circumstances and different expectations.
But by planning how much you’ll need, and working out how best to build up your pension pot, you'll be in a great position to live your best life in later life.
Take the quick quiz in our retirement calculator to work out which retirement lifestyle would suit you best.
People have different ideas of how they might live when they’ve finished working.
The Pensions and Lifetime Savings Association (PLSA) broadly categorises these into 3 retirement living standards:
Minimum – geared towards paying for essentials with all your needs covered.
Moderate – gives financial security and some flexibility.
Comfortable – provides more financial freedom and some luxuries.
How many holidays do you see yourself taking a year? Would you have a car? If so, how often would you want to replace it? And how much home maintenance do you think you’ll need to do?
When it comes to working out the retirement income you’ll need, it’s easy to make the mistake of basing the figure on your salary while working. So, you’re likely to think you need more to live on than you actually do.
Bear in mind your living costs will probably change in later life – often significantly.
People tend to spend less on housing costs such as mortgages, but more on things like heating bills, healthcare and insurance.
Many people's spending also goes down after they stop working because they no longer have to worry about things like commuting and pension contributions.
Research from the PLSA, in conjunction with Loughborough University, suggests that retired couples living outside London are spending on average around £30,600 a year in 2021 (excluding housing costs). That’s £1,500 more than before the start of the coronavirus pandemic.
They suggest this amount should be enough for what a ‘moderate’ lifestyle.
As well as paying for all your everyday spending, it should cover some extras, such as 2 weeks’ holiday a year in the UK and Europe. It also covers spending £100 each month on eating out.
To achieve a ‘comfortable’ lifestyle, including 3 weeks’ holiday a year and running 2 cars, a couple would need a figure closer to £50,000 a year.
Our nifty retirement calculator will show you the projected income you’ll need based on the lifestyle you’d like to have in retirement.
Here’s a quick way of calculating how much to save: at the time you start saving for your pension, halve your age, then use that number as the percentage of your salary you should aim to save each year.
Many experts recommend this rule of thumb. It would mean if you start at 20, you should aim to be saving 10% of your annual income towards your pension. If you start when you turn 30, this would rise to 15% and so on.
For most people, your pension income will come from 3 sources:
your State Pension
a private and/or workplace pension scheme
any other income, from property or investments, for example
Our retirement calculator helps you work out your projected retirement income. It’s based on the State Pension you’ll likely receive, the current value of your pension pot and the total amount you’re contributing each month.
It will also tell you if you’re on target to achieve the lifestyle you’d like in retirement. Plus, you can play around with the results to see what difference it would make if you saved more each month. Or worked longer.
And if find you aren’t quite saving enough – which isn’t unusual – we have some useful tips on how to take positive steps.