How much do I need to save for retirement?

Marina Gerner
20 April 2017

To enjoy a comfortable retirement, couples need to put away £131 per month from the age of 20, according to a new report by consumer research group Which?.

Those who wait until their 50th birthday to start saving into their pension need to save £633 a month. 

Which? assumed that pension contributions receive tax relief at 20% and that they grow by 3% a year after charges. 


The pot was built up until the individual reached state pension age, so the age used in their calculation was 67 for those starting at age 40, 50, and 55, and 68 for those starting at 20 and 30.

Retired couples need an average £18,000 a year to cover household essentials, such as food, utilities, transport and housing. This figure rises to £26,000 if it is to include extras such as short-haul holidays and some leisure activities.

A ‘luxurious’ retirement, which was defined as including new cars and exotic holidays, requires an annual income of £39,000.

Building on the Which?'s findings, a recent report from Tilney found that Brits will spend an average £420,385 in retirement, and that they underestimate their total spending in these years by around £100,000.

According to Tilney, newly retired households (age 65+) spend £26,500 each year until they reach 75. This means that a couple needs £14,100 each year on top of their state pensions to sustain their current lifestyle once they retire.

People between the ages of 65 and 74 are spending their money in the following ways on average:

  • £1,898 per year on holidays
  • £1,903 each year on restaurants and take-aways
  • £125 each year on going to the cinema and museums
  • £617 each year on alcohol and tobacco
  • £1,138 each year on new cars and motorbikes


How big does your pension pot need to be to achieve that?

Which? calculated that in order to generate a post-tax annual income of £26,000 by buying an index-linked joint-life annuity, a couple would need a pension pot of £370,000 alongside their state pensions.

If the couple decided to leave their money invested and use an income drawdown plan, they would need £210,000 saved in a defined contribution (DC) pension as well as their state pension.


A post-tax annual income of £39,000 for a luxurious retirement, including the state pension, would require a pension pot of around £1 million to buy an index-linked, joint-life annuity. To generate the same income by using an income drawdown plan, the couple would need £550,000 in their pension.

Gareth Shaw, money expert at Which?, says: "When it comes to saving for your retirement, start early and save often. Being a part of your company pension scheme is a good start, but, depending on how much you contribute, you could well need to save a little more to have the lifestyle you want in retirement."

Rose St Louis, savings expert at Zurich UK, adds: "The cost of our daily essentials can seem small at first glance, but pile this up over a week or a month and the sum is a little more daunting. Add to this the cost of enjoying your chosen hobbies and there’s no doubt that the saving needs to begin now – particularly given more than half of UK adults fear that a lack of such savings will prevent them from achieving their aspirations for later life.

"That said, just as these daily costs add up over time, so does the money you put aside – even small amounts. Low interest rates and rising inflation make it increasingly important to maximise savings potential, and pensions can prove to be one of the best investments when looking to the long-term."

This story was originally written for our sister magazine, Money Observer.

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