According to the National Employment Savings Trust (Nest), £15,000 a year is the amount we should be aiming for to guarantee a comfortable retirement.
Nest looked at a number of factors, including pensioners’ ability to afford everyday household bills as well as their sense of satisfaction with life, found once people reach that income level, they begin to feel more comfortable and more financially secure.
It said there was a significant shift in quality of life among pensioners living on a household income of £15,000-£20,000 a year compared to those with less.
How much money will you need in retirement?
The cost of living crisis
The spiralling cost of living is a worry for a third of people living on less than £15,000 who find it difficult to afford their household energy bills and a quarter find it difficult to afford groceries.
That drops to just 15% and 9% respectively for pensioners with a household income of £15,000-£20,000.
Women are more likely than men to be living under the £15,000 threshold.
It also noted there was a massive shift in levels of overall life satisfaction if a pensioner had more money in their later years. Per extra £5,000 income, satisfaction increased by 7%.
Do you still have to pay tax when you retire?
How much should I save?
To secure an income of £15,000 a year will take some planning. Calculations from Just Retirement show that to get an £15,000 income based on £7,500 new single tier state pension and £7,500 private pension you would a pot of £125,222 for a standard annuity based on a an average 65-year old.
But working out how much you should have in your retirement fund depends on many factors including if you still have a mortgage to pay off and any other debts. Trying to work out how much money you are going to need isn't easy.
There are some steps you can take to make sure your retirement is well planned – even if you are already in your 50s.
Patrick Connolly at advice firm Chase de Vere said: “Its no use coming to your retirement plans weeks before you want to take your pension. If you haven’t had a look at your pension schemes or undertaken any retirement planning then the sooner you get going, the better.”
Request projections from your pension companies to see if you are on track. The sooner you identify any shortfall or poor performing investments, the better.
Many schemes switching into cash and bonds from riskier stock market related investments when people reach their 50s.
But those expecting to retire much later in life could consider staying in the stock market for longer to maximise the potential of nest eggs.
You should also calculate when you will reach state pension age and an estimate of how much you will receive at https://www.gov.uk/calculate-state-pension.
This will help give you an idea of what you already have “in the bank”.
Getting advice on retirement planning is important so that you get it right. Again, the sooner you do this the more time you will have to adjust your plans if necessary.
After all, saving in a pension is just one element of retirement planning.
Do you know which benefits you might be entitled to when you retire?
Choosing a retirement route
Last year about 420,000 people bought annuities, the insurance contracts that pay an income for life in retirement. Yet hundreds of thousands of investors are handing over life savings at retirement without first taking advice.
Some 43% did not seek professional help, according to the research by the Association of British Insurers.
The rules around pensions are to change so that people will not be forced to buy an annuity with their savings. From April 2015 anyone who is aged 55 or over will be able to take their entire pension fund as cash – although only the first 25% will be tax-free.
The remaining 75% of the fund would be taxed at the saver’s marginal rate, rather than the current 55% charge for full withdrawal.
Most experts expect the majority of people to still use an annuity to secure some or all of their retirement income despite the poor returns and new flexibility.
Annuities guarantee an income and as such will still suit those people who need to fix their income in retirement.
Experts agree that the most important thing is to take your time and research your options using professional guidance.
Find out more about Saga's financial planning services for the over 50s...