How much do I need to retire?

It’s the question everybody wants an answer to…

I am often asked: “How much do I need for retirement?”

Although it’s a simple question, the answer is complex. However, the clever folk at Fidelity have done some research and their views can act as a useful barometer for your pension planning.

How much do I need to have saved?

It really depends on when you want to retire and what you want to do when you get there – but Fidelity have come up with a factor which will certainly help you benchmark yourself against their research.

They found that by the age of 30 you should have one times your salary in retirement funds; at age 35, two times; at 40, three times; 45 four times; 50 six times; 55 seven times; 60 eight times; and when you reach 67, 10 times.

Now have a look at your retirement funds. How do you compare?

Remember, this is a generic starting point to give you a guide. But if you’re way off, it may be worth giving your retirement funding some attention.

My own view is that you’re unlikely to want less than these factors of your salary – and it’s very probable you’ll want more.

How much should I tuck away each month?

I always say that the best time to start investing was yesterday and the second-best time is today. So why not make a commitment as the new tax year begins to start saving more into your retirement fund?

In my book The Money Plan, I recommend you keep the first working hour of your day for your future.

If you work an eight-hour day, that’s the first 60 minutes of your income going into your pension.

That works out as 12.5% of your salary and should be your minimum goal. If you saved 12.5% of your income into your workplace pension, your employer would be adding at least 3% so you’ll have a comfortable 15.5% being invested for your future self.

Think of it simply as transferring some of your income now to provide you with an income later, when you will need it most.

Why haven’t I saved more of my money?

Two driving emotions influence our decisions in life: pain and pleasure.

If we link our pension contributions now with the pain of having less to spend, rather than seeing the future pleasure of a healthy, wealthy retirement, we’ll never get ourselves over the line to make sizeable contributions. If this is you – if you “can’t see the point because it’s so far ahead – I recommend two courses of action.

First, spend some time designing your retirement: make a list of all the places you want to go and people you want to see. Second, make it so compelling that you want it now.

Many people don’t start saving for retirement until it’s too late. They then become motivated by the pain of the continued grind of work and the pleasure of retirement is a means of escape. But by then, it’s often more difficult to achieve because you have less time to build your pot.

Plan your retirement now and work towards your retirement plan.

To learn more about retirement planning and pensions, search for The Money Planner podcast online.