How Much I Should Save For Pension
Published / Last Updated on 03/10/2014
How Much I Should Save For Pension - Help with working out how much should you save for your pension.
"Hello again, today the subject is pensions and the one question that everybody asks me is Ash how much should I pay in my pension how much do I need to pay into my pension for when I retire and the simple answer is you should always pay in as much as you can afford, don’t overstretch yourself so that if things become tight because of mortgages or children or anything like that that you have to make cutbacks.
So point number 1 only save what you can afford and look to build on that through the years. In terms of then trying to plan for how much am I going to retire on and how much do I need to put into my pension to get there. It is probably easiest to get a handle on how much pensions cost and when we get to retirement you’ll have built up a pension fund and that then is invested, it buys something called an annuity and that annuity gives you an income for the rest of your life so think of it very much like interest rates.
Now to give you some numbers, quick numbers here, to get a pension of £10,000 a year when you get to retirement let’s say at age 65, that will cost based upon current annuity rates in the order of about a staggering £300,000 that’s because annuity rates and interest rates are quite low at the moment. So if you want an inflation protected pension so you get pay rises every year, you need for a £10,000 pension fund, pension income sorry, you need about £300,000 in your pension pot, now that seems a lot of money for every £10,000 pension, so to give you some guidance on how you get there, what I would suggest is for a 20 year old they probably need to be saving about £100 a month for every £10,000 a year in pension that they want, for a 30 year old nearer £150 a month, for a 40 year old in the order of about £200 a month and for a 50 year old because you’ve left it a little bit late then, probably need to be saving about £300 a month to get a £10,000 a year pension when you get to age 65.
£10,000 pa inflation linked pension costs £300,000
Age 20 save £100pm
Age 30 save £150pm
Age 40 save £200pm
Age 50 save £300pm
So to bring that forward, if let’s say you want to retire on a £20,000 a year pension if you’re aged 20, then double that up you probably need to save £200 a month or going to the other extreme if you’ve left it late and you’re 50 to get a £20,000 a year pension you probably need to be saving now about £600 a month. So pensions are a serious matter but really we have to plan in the long term to achieve our goals, so save, save regularly don’t get put off by the numbers because we will get there, but never over commit yourself."
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