How Much To Save For Retirement? Expert Guide & 4 Benchmarks

TLDR

Thinking about how much to save for retirement can feel overwhelming, but it’s more manageable when you define what “enough” means for you. This guide helps you move beyond abstract savings goals by showing you how to calculate a concrete target based on your desired retirement lifestyle, with practical benchmarks to help you stay on track.

Author Bio

This article was written by the team at Flying Colours, a firm of independent financial advisers dedicated to providing personalised, clear, and actionable financial guidance. With a collective of highly qualified professionals, including Chartered Financial Planners and specialist advisers, the team brings a wealth of expertise in areas ranging from retirement and investment planning to inheritance tax and estate management. Flying Colours’ commitment is to build long-term relationships with clients, helping them navigate complex financial landscapes and achieve their life goals with confidence and clarity.

How Much Should You Be Saving for Retirement?

As you envision the things you’d like to achieve during retirement, there’s a chance you already have a list of dream activities to keep you busy in the next phase of your life. That said, thinking about what you want to do when you stop working is the easy part – it’s also vital to figure out how much this could all realistically cost. This ensures that you will set aside enough to live your desired lifestyle when you stop working.

If you’re still unsure about how much you need to save or don’t feel confident about your current savings goals, then you’re not alone. Data from MoneyAge reveals that 64% of people living in the UK don’t feel confident about retirement, while 36% are unsure about planning for later life.

Instead of focusing your financial plan solely on wealth accumulation, it’s also important to remember that there is such a thing as “enough”. But how do you accurately quantify what this means?

Continue reading to learn about the concept of “enough”, and how you can build a goal-centric financial plan to help you realise what this figure could look like for you.

How much is enough to save for retirement?

Great minds throughout the ages have discussed the concept of “enough”

Throughout history, many great minds have contemplated the concept of “enough”. Even though some of these teachings are centuries old, they are still relevant today.

For example, during his life between 470 and 399BC, Socrates, one of the greatest philosophical minds of ancient Athens, once stated: “Happiness does not depend on external things, but rather how those things are used. A wise person will use money in the right way in order to make their life better; an ignorant person will be wasteful and use money poorly, ending up worse than before”.

This ageless insight underlines the importance of using your wealth as a tool for betterment to enrich your life, highlighting the significance of aligning your wealth accumulation with your life goals, rather than just saving for the sake of it.

Fast forward to the late 18th century, the Scottish economist and moral philosopher, Adam Smith, believed that having “enough” money is about securing a comfortable life. Indeed, he suggests that it isn’t wealth itself that we aspire towards, but the happiness it brings.

Smith’s teachings show that, even 200 years ago, “enough” wasn’t simply a financial benchmark, but instead a sign of a comfortable life full of contentment.

What Does “Enough” Look Like for You?

While philosophers and great minds have long contemplated the concept of “enough”, your personal figure will depend entirely on your desired lifestyle. There isn’t a “one size fits all” savings target you should aspire to, which is why it’s essential to first define your ideal retirement.

Start by visualising the lifestyle you want, from the everyday to the extraordinary. Your goals could include:

A “Minimum” Lifestyle: The Pensions and Lifetime Savings Association (PLSA) defines this as covering all your basic needs, with a little extra for social activities.
A “Moderate” Lifestyle: This provides financial security and some flexibility for holidays and a new car every decade.
A “Comfortable” Lifestyle: This offers more financial freedom and luxuries like regular trips abroad and fine dining.

By using these standards as a guide, you can begin to quantify the income you’ll need to support your chosen lifestyle.

It’s also wise to keep other pragmatic financial needs in mind, such as paying for later-life care or home modifications. Additionally, planning for potential healthcare costs can significantly impact your financial stability, as these expenses can rise unpredictably.

By taking a goal-focused approach to retirement planning, you could better understand how much would be “enough” for you during the next phase of your life. From there, you can determine how much money you actually need to save to achieve that goal.

What are the 4 Retirement Savings Benchmarks?

If you’re wondering if you’re on track, several financial institutions have developed helpful benchmarks and rules of thumb to guide you. Remember, these are general guidelines, not a replacement for personalised financial advice.

The ‘Halve Your Age’ rule is a popular rule of thumb suggests halving your age when you start saving and using that as the percentage of your salary you should aim to save each year. For example, if you start at age 30, you should aim to save 15% of your annual income (including employer contributions).

The ‘Salary Multiples’ Benchmark: Another common approach is to track your savings as a multiple of your annual salary. For instance, Fidelity’s retirement guidelines suggest aiming to save:

1x your salary by age 30
2x your salary by age 40
4x your salary by age 50
6x your salary by age 60

These benchmarks can give you a tangible goal and a clear indicator of whether you’re on a solid trajectory toward your retirement.

How much can I save for retirement?

“Enough” will look different for everyone, so it’s vital to decide what this means for you

While philosophers and great minds through the ages have championed the concept of “enough”, it’s important that you identify this figure yourself.

However, determining what constitutes “enough” is highly personal, and each individual’s version of the concept will vary depending on how much they’d need to achieve their own specific goals. This is why there isn’t a “one size fits all” saving figure that you should aspire towards.

So, it’s essential to think about the kind of lifestyle you desire during retirement before you consider any financial requirements.

For example, some of your goals for retirement could include:

Taking a trip of a lifetime – if you’d like some inspiration, read our latest guide ‘10 incredible destinations to add to your bucket list’
Moving to your dream home or renovating your current one
Giving financial help to your loved ones

It could also be wise to keep other pragmatic financial needs during retirement in mind, such as paying for later-life care or making changes to your home. Additionally, planning for potential healthcare costs can significantly impact your financial stability, as these expenses can rise unpredictably. It’s also essential to consider the concept of “what is tax creep,” which refers to the phenomenon where inflation pushes individuals into higher tax brackets, reducing their overall income in retirement. By proactively addressing these factors, you can better ensure a comfortable and secure retirement lifestyle.

By taking a goal-focused approach to retirement planning, you could better understand how much would be “enough” for you during the next phase of your life. Then, you could use this new base of knowledge to figure out how much money you actually need to save.

How can I get help to save for retirement?

A financial planner could help you figure out and save towards the coveted “enough”.

When, after careful consideration, you’ve identified your goals and ideal lifestyle for retirement, you can then determine how much wealth you’d need to accumulate to achieve this. Though, as mentioned, thinking about what you want to do is the easy part, while identifying a savings target can be slightly trickier. Thankfully, working with a financial adviser can be a helpful way to figure out how much you need to save.

We can use sophisticated cashflow forecasting software to assess your current wealth and your future income, alongside several external variables that could affect you, such as investment performance or inflation. Then, we can develop a model that gives you a clear overview of your financial situation, and how it may change in the years ahead. This information can form the foundation of your financial plan, helping you establish how much is “enough” for your desired retirement lifestyle.

Cashflow planning can also show you the impact of any financial decisions you make, which could help you understand whether you’ll still have “enough” should some unexpected challenges arise. Equally, it’s important not to stretch your goals and aspirations for more than “enough”. Once you’ve established how much you need to save and eventually reach this coveted figure, there’s little sense in taking on unnecessary risk or delaying your retirement to accumulate more.

If you’ve already reached your savings goal, this may indicate that it’s time to benefit from the fruits of your labour and stop worrying about your finances.

Get in touch

If you have an idea about the things you wish to do in retirement, but don’t know how much you need to save, then we can help.

Get a Free Retirement Planning Consultation

Please email hello@fcadvice.co.uk or call 0330 828 4714 to find out more.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.