Is saving 11% of your income enough for retirement?

7 December 2017
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UK investors save more than the average European investor, according to new research, but is it enough for a good retirement income?

Schroders’ annual Global Investor Study found that non-retired UK investors are saving a higher proportion of their income than their European counterparts - 11.3% against 9.9%.  

However, this is both below the global average pension saving of 11.4%, and less than the average 12.4% amount investors surveyed believed they needed to save to achieve an adequate income in retirement.

Worryingly, nearly half (42%) of those surveyed who had already retired wished they had saved more, which begs the question: how much do you need to save?

According to Schroders’ analysis, if a saver contributed 15% of their income into a pension each year they worked, they would require a 4.3% average annual real return to achieve a retirement income worth 66% of their salary.

Meanwhile, a pension input of 10% each year would require 6.2% returns to generate a 66% salary replacement rate - a level that is higher than the long-run return on equity markets.

See the graph below for how much of a return each percentage wage contribution would require to achieve a retirement income worth 66% and 50% of your salary: 

‘Even established investors aren’t saving enough for retirement’

Schroders also found that investors in the UK would, on average, like to retire at the age of 59.7. This means for most, there would be a nearly decade long gap to fill before they could begin to draw their state pension.

However, as Moneywise has often warned – relying on the state pension alone isn’t enough for retirement. The state pension age is also set to rise in 2019 to 66 and to 67 in 2027.

Lesley-Ann Morgan, head of retirement at Schroders, comments: “It’s well known that people aren’t saving enough for retirement but this study shows that even those who are already established investors are not putting away enough money.

“There’s also a strong message from some of those who have already saved: ‘I wish I had saved more’.

“The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns. To reach their goals, people will need to save even more than savers did in previous generations.”

But despite these slightly daunting figures, Schroders did find that most investors remain optimistic that their investments will return 8.7% a year on average over the next five years. 

Read more about managing your pension on Moneywise

Comments

In reply to by anonymous_stub (not verified)

It's hard to take you seriously when you can't even read your own graphs correctly. You state: "... if a saver contributed 15% of their income into a pension each year they worked, they would require a 4.3% average annual real return to achieve a retirement income worth 50% of their salary." According to the graph, the 4.3 return achieves an income worth 66% (not 50%) of their salary. Also, you make a similar mistake for the 10% contribution argument.

In reply to by Jeff Williams (not verified)

Hi Jeff,

Thank you for bringing this to our attention. We have spoken to Schroders to clarify the correct number and have corrected the piece accordingly.

Regards,

Moneywise Edmund

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