A shocking new study from Saga has revealed that four in ten people over the age of 40 have no idea of how much money they will need to retire on. It makes a mockery of the whole idea of retirement planning, and raises a very real risk of an entire generation who could run out of retirement savings.
The study asked people to estimate how much they would need to live on each year in retirement, and 40% of them were clueless. They then asked people how big a pension pot they would need in order to generate their desired income, and an alarming 80% of people had absolutely no idea.
The basic rule of thumb recommended by the experts is that people in retirement should aim for two thirds of the income they have while working in order to enjoy the same lifestyle. Again, a very rough rule of thumb for a very basic lifestyle is £10,400. For a comfortable lifestyle it’s £1,600, and for a luxury lifestyle it’s £64,000.
How much do you need to save to retire at 55?
The precise amount you’ll need to save each month to retire at 55 depends entirely on the kind of lifestyle you plan on having in retirement.
According to research conducted by Which?, you’d need an annual household income of about £26,000 to have a comfortable retirement. This covers all basic areas of expenditure and some luxuries such as European holidays, hobbies and eating out.
To provide this level of guaranteed annual income, you’d need a pension pot of just over £1.3m that keeps up with inflation1. This pot size is larger than the current lifetime allowance.
A more luxurious retirement, including buying a new car every ten years and taking regular long haul holidays would require an annual household income of £39,0002, which means a pension pot of nearly £2m3!