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Are you saving enough for retirement?


    Worryingly, research has shown that 90% of all defined contribution pension savers aren’t saving enough to enjoy a comfortable retirement. And since a large majority of us Brits have defined contribution pensions, this suggests that chances are that you aren’t saving enough for retirement.

    Something that you may not have considered is that this actually gets worse the more you earn. Research by the Centre for Ageing Better shows that over three-quarters of the highest earners won’t have saved enough to maintain their pre-retirement standard of living.

    The richer you are, the harder it is to sustain in your golden years. So If you’re a high earner, you probably need to be saving more than you think for retirement.

    Save for retirement or enjoy life now?

    Perhaps you’re avoiding retirement savings because you want to spend your hard-earned money now. You wouldn’t be alone: it’s one of the biggest reasons that we see getting in the way of people building a big enough pension pot.

    In a world where you can place an order and have it sat on your doorstep an hour later, with constant comparison to strangers on the internet and upgrades available at your fingertips, it’s easy to get sucked into the ‘I need that NOW’ mentality.

    Plus, as we earn more we naturally want to spend more. This concept, known as lifestyle creep, is when an increased income leads to increased spending and lower savings. It manifests in a heightened taste for the finer things in life, resulting in a severely depleted savings pot.


    The problem is that this short-term gain leads to a long-term loss. While it is totally subjective when it comes to what constitutes a ‘comfortable’ retirement, the fact remains that if you can’t have the lifestyle that you’re used to, you’re going to have a harsh shock in later life. Saving a sufficient amount now means that you can enjoy your financial future free from stress and pressure while living a life that feels good to you.

    retirement budgeting list

    Is saving for retirement worth it?

    Saving for retirement is essential if you want to enjoy your later years free from financial stress. For higher earners, the UK state pension is insufficient to support a comfortable retirement. As one of the least generous in the developed world, it is estimated to provide around 58% of average pre-retirement earnings.

    However, the current state pension of £10,600 (2023) is a drop in the ocean for most middle to high-income households and would represent a significant fall in living standards.

    No one wants to survive on the bare minimum; Afterall, your retirement is your time to really enjoy the things in life that matter to you. And while it may feel incredibly appealing to cut corners on your savings now so that you can enjoy that last-minute holiday or that flashy new car, those decisions are eating further and further into your comfortable retirement.

    Even if you plan on working throughout your retirement, it’s still crucial to save. You cannot predict the future. Countless things could get in the way of you working – from ill health to job loss – and you don’t want to find yourself stuck with a dwindling pension pot and no way of topping it up. 

    Pensions are also the most tax-efficient vehicle in the UK for your money. Their benefits are enormous:

    • Company directors don’t pay tax on pension contributions, plus it’s a tax-deductible expense
    • Pension contributions reduce your taxable income as an employee through tax relief
    • You can access 25% of tax-free cash through your personal allowance
    • Pensions are free from inheritance tax


    What’s a good pension pot?

    According to the Pensions and Lifetime Savings Association, a moderate or comfortable retirement target would call for a pension pot between £440,000 – £1,100,000 for a single person household (outside of London). For couples, this figure is higher; between £480,000 – £1,475,000.

    You might notice that there’s not a big difference between what a single person might need for retirement and what a couple should aim for. This is because: 

    • In theory, a two-person household should receive twice the State Pension income
    • The targets for a two-person household are only about one and half times that for a single-person household, because it’s cheaper to share a home and split the bills between two.

    To work out what size pension pot you need, you should first check whether you are entitled to receive the full UK state pension. While the state pension is not enough for most people to have a comfortable retirement, it does contribute a considerable amount to your overall pot: for 2023, this is currently £10,600 per year. If you, therefore, aren’t due the state pension, you need to fill that gap of over £10k per year.

    what's a good retirement income article_retirement budget list

    However, if you’re not planning to follow the PSLA pension targets there is another way to estimate what a good pension pot size looks like. As a general rule of thumb, for every £3,000-£4,000 of retirement income you require, you’ll need around £100,000 in your pension pot.

    Anyone wanting an annual retirement income of £50,000 would need a pension pot of between £1.25-£1.67 million.

    Remember that pension income is taxable.

    Still, need a helping hand to see whether your current saving is hitting the mark? Fill in a few details on our FREE ‘How much do I need to retire?’ calculator.


    How much money should I be saving to retire?

    The amount you need to save for retirement is entirely dependent on:

    • how long you save for
    • how you save and invest your money
    • how big a pension pot you want for retirement

    However, according to research by Fidelity, you should aim to save a minimum of 10 times your annual salary by the age of 67. Broken down this equates to: 

    • 1 x your salary by the age of 30
    • 3 x by the age of 40 
    • 6 x by the age of 50 
    • 8 x by the age of 60 
    • 10 x by age 67


    Auto-enrolment might not be enough

    Although auto-enrolment has gone a long way to help make sure UK workers are saving enough, the existing levels of saving are inadequate when it comes to reaching the recommended target replacement rates for retirement. The majority of us (a frightening 90% of all defined benefit contribution savers) are at risk of not achieving a decent replacement rate. That means that come to your retirement, you may be faced with some drastic changes, cutbacks and compromises. Hardly the carefree golden years you were hoping for.

    Research from Fidelity recommends saving 13% of your household income towards retirement, which is above the current 8% auto-enrolment level, and some estimates recommend saving as much as 20% to meet retirement goals.

    It’s important to see Auto-enrolment as what it is, a basic minimum of retirement saving.

    Calculate how much you’ll need for retirement, create a retirement budget and work backwards from there. Consider contacting a financial advisor for support; They will ensure that your retirement plans are on track, that you’re saving enough and maximising your investments.

    Am I saving too much for retirement?

    The chances are that you aren’t saving too much for retirement. When you consider the research suggesting that 90% of defined contribution savers are saving too little for their retirement, it’s far more likely that you need to increase your investment contributions. 

    Saying that there are ways to check whether you are saving too much. Start off by comparing your estimated pension income with your estimated cost of living in retirement. You can use our ‘How much do I need in retirement’ calculator as a starting point. 

    Once you have this figure, use our ‘retirement savings calculator’ to see whether or not you are saving too much.

    It’s important to note that even when you have the best intentions, sometimes life throws us a curveball and we may need to tweak and reduce our contributions. If saving a certain amount is getting in the way of your basic living standards, then take another look at your savings plan. 

    This is something that we can help you with here at 2020 Financial. Our team of independent financial advisors are here to provide impartial, professional and strategic advice so that you can hit your retirement goals in a way that works both now and for your financial future.

    Get in touch to arrange a free consultation. We’d love to chat.

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    Simon Garber

    Simon Garber

    Simon Garber, DIP PFS, runs 2020 Financial Ltd. He's an Independent Financial Adviser and Pension Transfer Specialist with over 20 years of experience. He's FCA registered, a member of the Personal Finance Society and holds the coveted Gold Standard for Defined Benefit Pension Transfer Advice.

    He is the Managing Director of 2020 Financial Ltd, Financial Advisors specialising in Retirement Planning & Wealth Management, based in Southampton, Hampshire.


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