Is saving 11% of your income really enough for retirement?
How much do you need to be saving now and in the immediate future to ensure that you will lead the life in retirement you choose?
With the day to day demands on your present income and the uncertainty of the eventual value of any occupational or private defined contribution (DC) pension scheme, it is likely to be a difficult question to answer. And that’s before you even begin to consider the comfort and lifestyle you hope to pursue in your retirement.
It is hardly surprising, then, that there is no universal agreement on how much you need to be saving now for a financially stress-free retirement.
But let’s take a look at some of the statistics.
Average saving rates
On the 30th of November 2017, international asset managers Schroders published the results of a global survey showing that those in work, pre-retirement, are saving an average of 11.4% of their earnings for their retirement.
Those surveyed nevertheless felt that they ought to be saving 13.7% and two out of three of those already in retirement believed that they should have invested more.
At 11.3% the rate of saving in the UK is very close to the global average – and somewhat better than many of its European neighbours. It still remains, however, below the 13.7% which is recognised by most people in the world as the target to aim for. Almost one in two (43%) of those already in retirement in the UK wished they had saved more.
To help put these actual behaviours and aspirations into perspective, Schroders estimate that even if someone in work is contributing 15% of their salary into a pension scheme, it might still not be enough. An average return of 4.3% a year is necessary to enjoy an income in retirement that is equivalent to 50% of what you were earning in employment.
If only 10% of earned income is saved, a return on investment of 6.2% would be required – a rate that exceeds average long-term returns on stocks and shares.
How much money are you likely to need in retirement?
Once again, the answer is likely to depend on the quality of life you expect to enjoy.
Some attempt at an answer is suggested by the Consumers’ Association’s Which? magazine in April 2017, which calculated that a couple intending to enjoy what they termed a “luxurious” retirement is likely to spend £39,000 a year, while those content with a “comfortable” retirement might need to spend only £26,000.
Why leave anything to chance?
However rigorous the research into saving rates and spending patterns of the average retired person, individual preferences and circumstances, of course, vary widely.
So that you may reach your own decisions about potential saving rates, the amount of pension income you might look forward to, and your options for making the most of that income, why not consult us here at Independent Pension Specialists Limited (IPSL) for some of those answers.
The data used in this article is correct at the time of writing.