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How Much Should I Save for Retirement?

No matter how old you are, retirement always seems a long way off.  For those yet to establish their careers, homes and perhaps a family, through to those who maintain a Peter Pan mentality and deny the reality of advancing years, retirement saving is frequently at the bottom of the financial priorities list.

What kind of retirement would you like to have?  Far from being a period in which to while away the remaining years contemplating their slippers and a mug of cocoa or pottering in the garden, both today’s and future retirees will have expectations of a healthy retirement filled with enjoyment and activity on many levels.  Greater life expectancy means potentially more years for everyone from the baby boomers through to Generations X and Y to enjoy some fulfilling years once the daily 9 to 5 has been left behind.  

Certainly there has been a big cultural shift due to a combination of ‘living for today’ thinking and increasing life span – though of course living longer means that we are advised to save more, too.

In today’s struggling economy many people are finding that balancing their budget for the essentials is enough of a challenge, without trying to save money for a time in the distant future as well.   However research has long shown that there’s a lack of awareness in the first instance of the need to plan and save for the retirement years.

In today’s terms, someone in their twenties who would like a retirement income of £25,000 per year (including the state pension) would need to save £430 per month including employers’ contributions and tax relief from age 30 to age 68, the state pension age for this age group.  Starting to save at age 25 means that this figure would reduce to £345 per month.

Another way of considering your retirement savings is to use a ‘rule of thumb’ so that by the age of 35, savings equate to one year’s salary — and this level of savings is maintained — so that by the age of 40 savings equate to 2 years’ salary, rising to 5 years by the age of 55 to cover at least the basic expenses of life.

For those trying to establish their first home, raise a family, see offspring through university  or increasingly, offer support (either financial to practical) to  elderly relatives it can be a simple matter of priorities.  Shifting social patterns mean that many people are delaying the arrival of children only to find themselves in the ‘sandwich’ generation, where they are caring for children as well as supporting elderly parents.

Financial experts all advise that saving as early as possible is the way forward. Saving a small amount early on, rather than a larger amount later will leave the early savers much better off as compound interest (where the lump sum accrues interest year-on-year), will have steadily accrued over the longer period.

It’s also important to consider realistic goals for the lifestyle you’d like to have once retired.  For those who have yet to pay off student debt, start a family or own their own home that may seem an impossible task with retirement planning low on their list of financial priorities, yet all advice points back to starting as early as possible.

Although ‘earlier is better’, it’s never too late to start saving for a retirement that doesn’t rely solely on the state pension as a means of income.  Whatever your age or stage of life, financial advisers can you help you plan and prioritise for a retirement that’s fulfilling and free from economic hardship, leaving you with the means to take up sky-diving, sprint triathlons, or certainly doing anything but — to quote Dylan Thomas —‘going gently into that good night’. 

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