03 January 2023 , 15:39
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Knowing exactly how much you'll need when you retire is tricky as it depends on your circumstances at the time and your expectations.
While some might be happy to live a relatively simple life, others may hope to holiday a couple of times a year and regularly eat out.
There are also other ways of funding your pension, such as renting out or selling property.
However, there is useful rule, recommended by experts, that gives you a fair idea of how much you need to save to live comfortably in our later years.
It's wise to consider what your lifestyle expectations are for when you retire (Getty Images)Take the age that you started or plan to start saving for your pension, halve it, then use that number as the percentage of your salary you should aim to save each year.
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For example, if you start at 20 years old, you should aim to be saving 10% of your annual income towards your pension. If you start when you turn 30, this would increase to 15% and so on.
Once you have this figure you can adapt it to fit your lifestyle expectations.
A lot of people think they'll need a similar income to what they receive now, but remember your outgoings might have reduced by then.
You might well have paid off your mortgage and shouldn't need to cover the cost of a daily commute to work.
Your costs may be lower when you retire because your lifestyle will have changed (Getty Images/Cultura Exclusive)Some costs can, however rise, such as household bills because you tend to be home more and healthcare.
Research from the PLSA, together with Loughborough University found that retired couples living outside London were spending on average around £30,600 a year in 2021 (excluding housing costs).
That was £1,500 more than before the start of the coronavirus pandemic.
They suggest this amount should be enough for what they call a "moderate" lifestyle.
Their "moderate lifestyle" is one where you have enough money to cover essentials plus a bit extra, such as two weeks a year holidaying in the UK or Europe and £100 worth of eating out a month.
To enjoy what they call a "comfortable" lifestyle, including three weeks’ holiday a year and the running of two cars, the research suggests a couple would need around £50,000 a year.
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Take into account whether expecting to go away on holiday when you retire and how often (Getty Images)Everyone who has at least 10 qualifying years on their National Insurance record is for a state pension. The full state pension is currently £185.15 a week.
What you contribute, and, if you have one, what your employer contributes, is in addition to this.
Halifax bank have a useful retirement calculator that helps you predict what you need to pay in each month by taking into account how much you've saved so far, if anything, and what your lifestyle expectations are.