Savers aged 20 need to put away £131 every month into a defined contribution (DC) pension to achieve a £26,000 annual income in retirement, research from Which? has said.
The figure rises to £198 for 30-year-olds, £338 for 40-year-olds, and £633 for 50-year-olds, and assumes 20% tax relief, 3% investment growth, and a state pension top-up.
Saving this amount would help a retirement fund total about £370,000 after tax that could then be used to buy an index-linked joint life annuity.
The research suggested a £18,000 annual income in retirement would cover household essentials, while a £26,000 income would allow spending on short-haul holidays and some leisure activities.
The calculations are based on a survey of 1,590 retired couples’ spending habits conducted in February by Which?. The findings include average annual expenditure of £4,414 on holidays, £3,967 on groceries, and £2,969 on housing payments.
The firm’s money expert Gareth Shaw said savers should consider the lifestyle they desire in retirement and then revisit their contribution rates.
“When it comes to saving for your retirement, start early and save often,” he said. “Being a part of your company pension scheme is a good start but, depending on how much you contribute, you could well need to save a little more to have the lifestyle you want in retirement.”
The research also said a pot of £210,000 would fund a £26,000 annual income via a drawdown product, where this money remains invested.
Aegon head of pensions Kate Smith said the figure was easily achievable if savers start putting money away early.
“It’s an often repeated claim that people don’t understand how much they need to save in a pension to secure a comfortable retirement and the figures from Which? help put this in context,” she said.
“An annual income of £26,000 is achievable provided people start saving early. The key to building a good retirement pot lies in what you do in the early years to make pension saving a habit and not a chore.”
An income of £39,000 would fund a “luxurious retirement” allowing for new cars and more far-flung holidays, but this would require about £1m in savings for an index-lined joint life annuity.
To achieve this amount, 20-year-olds would need to put away £283 each month, while this would rise to £1,657 for 50-year-olds.
The post Young workers need £131 per month for comfortable retirement – Which? appeared first on Retirement Planner.