Saving for retirement is easy to neglect. With bills to pay and more exciting things to spend our money on, there are plenty of reasons to delay saving for our post-work life.
Adopting a ‘live for today’ approach to our finances might mean we get to go on that trip we’d always dreamed of sooner or drive the fancy car we always pictured ourselves owning.
We may regret those decisions as we approach retirement though and face the reality of a significantly reduced income, that doesn’t allow for any of the treats we’re used to. Or worse still, having to delay retirement because we haven’t built up a big enough fund to cover the essentials.
Or, with the cost of living remaining high, the thought of being able to put money aside for our retirement can feel like an unachievable dream for some of us.
With careful planning though, saving what might feel like an insignificant amount, can have a positive impact on our future financial wellbeing and provide us with a more comfortable retirement.
When should you start saving for retirement?
Put simply, the earlier you start saving for your retirement, the easier it will be. Putting a small amount of money away from a young age will ease the pressure of having to top up your retirement fund as you enter the later years of your career. And having money invested over a longer period of time means you’ll stand more chance of benefiting from interest payments, dividends and compound growth, whether that be through pensions, savings accounts or investments.
If you start saving when you begin working, you may have a big enough investment pot to retire at 60. However, if you don’t start saving until you’re in your 40s, you may find you need to continue working in some capacity to top up your state pension and other investments.
But don’t despair if you think you’ve left it too late, as there are opportunities to save at every stage of life that could benefit you in later years.
How to start saving for retirement
The starting point for most people looking ahead to retirement is their State Pension, which is paid by the Government. You’ll qualify for the new State Pension if you are:
- a man born on or after 6 April 1951
- a woman born on or after 6 April 1953.
If you were born before these dates, you’ll receive the basic State Pension.
Your State Pension is funded by your National Insurance contributions, so the amount you receive will depend on your National Insurance record.
Bear in mind that you’ll usually need at least 10 qualifying years of National Insurance contributions or credits to qualify for any State Pension. Don’t worry if you’re unsure about how much you might be entitled to though, as the Government website will provide a forecast for you.
In addition to the State Pension many of us will benefit from a workplace pension. These come in many forms, with different levels of contributions for employers and employees, along with a variety of benefits.
While workplace pensions have been around for decades, under current rules your employer must automatically enrol you in a pension scheme if you are:
- Over 22
- Under the State Pension age
- Earn more than £10,000 a year.
The minimum total contribution for a workplace pension scheme is 8% of your ‘qualifying earnings’. This is made up of a 5% contribution from you (including tax relief) and 3% from your employer.
You can opt to pay in more than this if you can afford to and some employers will even match your contributions. Workplace pensions are fully protected, so are a safe way to save.
Payments you make into your pension pot also benefit from tax relief. For example, if a basic rate taxpayer invests £80 of their take-home pay into their pension, this equates to £100 before tax.
You can opt out of your workplace pension, but by doing so you’re effectively giving yourself a pay cut, as you won’t receive your employer’s contributions or the tax relief.
Other options for saving for your retirement include –
- Personal and stakeholder pensions: these are private pensions that you pay into, although employers can also pay into them as a form of workplace pension. What you get back will depend on how much you pay in and how well the investment does over time. They can be useful if you want to boost your pension fund in addition to your State and workplace pensions. They’re also useful if you’re self-employed, so don’t have a workplace pension, or if you’re working but can’t afford to pay into your workplace scheme.
- Savings accounts: these include a wide range of options from fixed rate accounts to cash ISAs and regular savings accounts. Although they may generate lower returns than stock market investments, you won’t risk ending up with less money than you started with. Also, if you pick a fixed rate product, you’ll lock in a guaranteed rate of return, which can help with financial planning.
- Investments: if you’re happy to take on a certain level of risk, you could explore products like stocks and shares ISAs or a Lifetime ISA (LISA). They can offer higher returns, but the value of these investments can drop as well as increase, so it’s sensible to consult a financial advisor before you go down this path.
How much should you be saving for retirement?
How much money you need for your retirement very much depends on the lifestyle you want to lead. None of us can avoid paying for essentials like food and utility bills, but if you plan on getting your pilot’s licence after you retire, you’ll need significantly more than if your favourite pastime is going for long country walks. Whichever route you choose to take, you’ll want to consider what level of retirement income you’ll need to achieve it.
The age you aim to retire will also have an impact on the amount you need to save. While many of us will aim to work until our State Pension age (which is currently 66 years old, although from 6 May 2026 it will gradually rise to 67 for those born on or after April 1960), some will hope to retire earlier, while others will work beyond it.
It’s also worth thinking about where you plan to live and how it will affect your outgoings. If you currently live in central London but plan to move elsewhere when you retire, the likelihood is that your cost of living will decrease. However, you may want to move to your dream house in a popular coastal town, which may end up being more expensive than where you currently live. Whether you choose to move to somewhere more expensive or cheaper, or are happy where you are, it’s useful to bear in mind.
The Pensions and Lifetimes Savings Association produce regular reports in collaboration with Loughborough University called The Retirement Living Standards, to indicate how much income you’re likely to need in retirement.
Their aim is to illustrate how much you need for a minimum, moderate and comfortable standard of living. Helpfully, they also break down the differences between a single and two-person household.
The figures for each living standard are based on the actual cost of a basket of goods and services across six categories:
- House
- Food
- Transport
- Holidays and leisure
- Clothing and personal
- Helping others.
| Single-person household | Two-person household | |
| Minimum | £14,400 | £22,400 |
| Moderate | £31,300 | £43,100 |
| Comfortable | £43,100 | £59,000 |
*correct as at January 2025.
These costs aren’t exhaustive though so should only be used as a guide, as you may have additional expenses that aren’t included, such as rent charges, mortgage payments and social care costs.
In short, with so many variables, there isn’t a hard and fast amount you should aim to save to provide for your retirement. The best approach is to carefully consider the lifestyle you want to lead, estimate how much it will cost you and speak to a pensions advisor about how best to achieve it.
