HOW much SHOULD I save for RETIREMENT? Is contributing 8% of gross salary to a personal pension enough to build a retirement income? What factors are involved in building a pension and what we can and can’t control? What to think about if your pension contributions are based on ‘qualifying earnings’…
We take a look at the minimum pension contribution required under auto enrolment. Also what size pension pot could an 8% pension contribution build along with showing some examples using our cashflow modelling tool, the impact of higher contribution levels, of starting later etc.
Link to OECD Pensions at a Glance:
Link to the Government Money Helper Website:
Link to Government review of qualifying earnings:
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How Much Should I Save for Retirement? Is an 8% Pension Contribution Enough?
Planning for retirement is crucial to ensure financial security during one’s golden years. However, determining how much to save can be an overwhelming task. Many factors come into play, such as desired lifestyle, expected longevity, and the availability of support systems like pensions and Social Security. In this article, we will explore the question of how much one should save for retirement and whether an 8% pension contribution is sufficient.
To begin with, it’s important to note that the ideal savings amount for retirement varies for each individual. There is no one-size-fits-all answer, as different people have different circumstances and preferences. However, several guidelines and general benchmarks can help you assess your retirement savings goals.
Financial advisors often suggest aiming for a retirement income that is 70-80% of your pre-retirement earnings. This percentage allows for the maintenance of a similar lifestyle without the financial burdens of working, such as mortgage payments and commuting expenses. For instance, if you earn $100,000 annually before retirement, your goal should be to have around $70,000-$80,000 of annual income during retirement.
To achieve this target, financial experts generally recommend saving around 15-20% of your pre-tax income throughout your working years. This figure accounts for savings from all potential sources, including employer-sponsored retirement plans, individual retirement accounts (IRAs), and any additional investments. If you have access to a pension plan, such as one provided by your employer, it is essential to consider its contribution in your overall savings plan.
Now, let’s address the question of whether an 8% pension contribution would be sufficient. While it’s great to contribute to a pension plan, an 8% contribution alone might not be enough to meet your retirement income goals. Pension plans are designed to supplement other sources of income like Social Security or personal savings. They are intended to be one piece of the puzzle, not the sole solution.
If you are relying solely on an 8% pension contribution to fund your retirement, you may want to reconsider your savings strategy. While every contribution towards retirement savings counts, it is generally advisable to aim for a higher percentage of your income. Consider contributing more, especially if your employer provides matching contributions, as this can significantly boost your retirement nest egg.
A rule of thumb is to contribute the maximum amount that your employer is willing to match, as this is essentially free money. Beyond that, it is beneficial to continue increasing your contribution percentage gradually, as you earn raises or reach other financial milestones. By doing so, you can help ensure a comfortable retirement that aligns with your goals.
Ultimately, the question of how much you should save for retirement is a personal one. It depends on several factors such as your current income, desired lifestyle, and the retirement age you wish to achieve. While an 8% pension contribution is a start, it is generally advisable to contribute more, diversify your retirement savings sources, and consult with a financial advisor to develop a comprehensive plan tailored to your needs.
Remember, the key to a secure retirement lies in starting early, contributing consistently, and regularly reviewing and adjusting your savings plan as circumstances change. With dedication and careful planning, you can establish a robust financial foundation to enjoy your post-work life worry-free.
Great video and these are some of the things I wish I knew earlier in life. What are your thoughts on the general rule of thumb on contribution should be half your age?
Hi Edmund
I'm in my late 30s and i do contribute around 10% of my earnings and my employer pays around 8% the of my gross earnings to DC fund. The funds are invested in mostly higher risk shares fund
My question is: what are the chances that I can retire at 58 with an income that's high enough to cover living expenses? You talk about making high enough contribution but if am honest i am rather pessimistic that my DC pot would be high enough at my retirement. Why do i think that:
A) the inflation is nearing 10% (RPI)
B) the UK government (or BoE to be more precise) is printing money like there is no tomorrow
C) the UK national debt is rising at the rate that that makes me think that taxes, bills, expenses like petrol/diesel will continue to increase at a stupid rate in the future
D) why on earth the average UK pension fund has no means to invest in gold/silver which is the perfect vehicle to invest in at the time of negative interest rates and the inflation spiraling out of control?
I have a very strange feeling this isn't a coincidence and the system is rigged…
So my follow up question would be: what difference does it make how much i save and how much i invest if the real rate of inflation is higher that the average rate of return on investment on my pension fund? In other words, in the real terms if my investment return is lower than the rate of inflation that I am losing money, burning them rather than gaining anything – right ?
Whose winning here, as i think the only one who really profits is the fund manager who gets the annual management charge/fee and not me … ?!
Are Tories going lose 800 councillors England yes. It out with London. Excellent news Thomas. Awesome. Art did that for Liberal Democrats.
Is now a good time to put extra into your pension?
I am 37 and work for tesco. I put in 7.5% of pay which is matched 7.5% as well. Able to save 220 total each month and saved 10k so far. Even on a low salary and taking into account 2% pay increases. I should have a pension pot of 300k if I retire at 68. If u start young, have a good job and contribution enough, any1 cud have 1 million in their pension pot.
Great video. Does these calculations include employer contributions as well? So 8% is total from BOTH employee and employee?
Right now im paying 15% and employer 10%, am i right in saying that is 25% of my gross annual wage is going into my pension? Thanks.
Can i put my partners lump sum from their final salary scheme(after they retire),into my pension pot, (personal pension 20% tax payer). To get the 20% tax boost on it?
I have contributed to a pension for 11 years of the 24 years I've been working. I'm 47 and – largely due to compound growth – I will easily retire by 60. I'm currently contributing 10% and my average contribution to date has been around the same.
The answer as I see it? Contribute as early as possible (if you're going to have a holiday from contributions, do it later in your career) and ensure your money takes more risk. High risk, compound growth is the answer to most pension problems. All in my humble opinion.
Left Australia two years ago, employers have to pay a minimum of 9.5% on top of your wage with no personal contributions and it’s going up in stages. We’re screwed left right and centre here in old Blighty.
Thanks Edmund
Excellent info. I've sent to my two children.Aged 24 and 22.
Is there a way to estimate when you have enough in your pension.
Scenario for example: If a 40 year old had £300k in a pension and plans to take it at age 60 is it possible to get some rough idea what it might grow to if no more money was added from age 40 to 60.
In this scenario approx. £600k is required at age 60.
Guess that I am an outlier – I only paid into a pension scheme for the last 14 years of employment, retired at 52 and started drawing my pension at 60. Yet my (and my partner's) total pension income is approx. 3 times our living expenses. Savings continue to grow… It is all more about what you spend than what you earn.
Very useful thank you. I've been making notes off your videos. I've lived and worked in the UK since 2003, first as a student then on a work permit, eventually becoming a British citizen in Jan 2012. I've been working since the first week I arrived here, contributing taxes and NI but I won't qualify for a full state pension because I haven't lived here long enough. I've been working full time in the HE sector since 2005 but owing to poor employer practices, haven't been enrolled in an occupational pension until Jan 2011. Since then I've been steadily contributing to my occ pension and I have also started paying in additional voluntary contributions by way of salary sacrifice. I am 52, single, no children, no dependents. Job security is poor in the sector so I am trying to save as much as I can, paying in min of £2000 each month into my pension pot but have also started to save recently in a S&S ISA. What is the min. pot that I can aspire to build within the next couple of years that would make things slightly more comfortable? At present my retirement builder in USS is only worth an annual payout of around 7500 and a 22k lumpsum but I've saved around 100k into my USS Investment Builder which is at least 20k higher at current valuation.
If this is you then you really need to switch your pension 5.5% is low the S & P have returned on average of 10% over the last 100 years….Stay away from money manager's and invest in a etf/index fund…vanguard is a good choice. Good luck.
I started working for my present employer 33 years ago. For all of that time, they have contributed an amount representing 20% of my gross pay to a really good pension scheme. I retire later this year and am thankful that I have a sizeable pension pot. Save as much as you can afford. 😎
Seems to me an omission by assuming the salary remains static over such a long period? Model should assume some increase surely?
good illustration but would Mr pickles receive a state pension I think it will be means tested at some point ?
Thanks for the information Edmund, as always very informative.
Can I ask what programme are you using to generate a forecast and is it available free to use or do you recommend a programme. Cheers
Its scary to think the minimum is really not enough! I've always tried to put a good bit extra into my pot to avoid worry later on, thanks for the video!
Late starter here. Only worked for tiny companies before age 36 so no provisions made by employer. Moved jobs and bigger employer enrolled at 6% with 6% employer match with bonus ongoing 3% contributions after 5 & 10 years service. After avoiding two rounds of redundancies in the space of 24 months I realised I need to reach "my figure" ASAP so I upped my contribution last year to make a total of 43% monthly which I plan to increase by 1% annually. Reached 50 with a pot of +£130k but growth being battered by markets of late so I hope I'll have enough !
I understand that as an Employee I'm to pay a 'minimum' of 5% according to many videos i've watched but qactually my emlpoyer pays 8% and i only actually pay 4%. Why is this? Am i not required to pay 5% minimum by law?