How Much Should You Save for Retirement in the UK?

Step 1: think about the lifestyle you want

Start with what you expect to spend. Some costs fall in retirement, such as commuting, pension contributions and sometimes a mortgage. Others may rise, including leisure, travel, heating and care. A common rule is that people need around two thirds to three quarters of their pre-retirement income, but many people need less or more. The Pensions UK Retirement Living Standards give examples of the annual income required for minimum, moderate and comfortable lifestyles for single people and couples. Check the latest figures on their website.

A good way to estimate your own spending is to build a budget. Our budget planner and guide to making a budget can help. Then adjust for retirement.

Step 2: add up your guaranteed income

• State Pension: check your forecast on GOV.UK. See state pension explained.
• Defined benefit pensions from past employers
• Other regular income, such as rent or part-time work

Step 3: estimate the pot you need

A common rule of thumb is to divide the annual income you need from your pot by a withdrawal rate. A 4% rule suggests that if you withdraw 4% of your pot in the first year, adjusting for inflationInflationInflation is the rate at which prices rise over time, reducing what each pound can buy.Read more → each year, it could last around 30 years. That means a pot of around 25 times your annual shortfall. For example, if you need an extra £10,000 a year, you would aim for around £250,000. This is a guideline only, not a guarantee. The right rate depends on investment returns, inflation, how long you live, how flexible you are and whether you buy an annuityPersonal Pensions and SIPPs ExplainedHow personal pensions and SIPPs work in the UK: tax relief, charges, investment choice, accessing your money, annuity versus drawdown and self-employed saving.Read more →.

Using an annuity can provide a guaranteed income for life. Rates depend on your age, health and market conditions, so check quotes. Different strategies are described in personal pensions and SIPPs.

Rules of thumb for saving

Several rules of thumb exist, and none is right for everyone:

• Half your age: some suggest saving a percentage of your income equal to half your age when you start. For example, start at 30 and save around 15% of income (including employer contributions), then maintain it.
• Total contributions of 12 to 15% of salary: often quoted as a rough target across a career, including the employer's share.
• Auto-enrolment minimums (currently 8% of qualifying earnings): a starting point, but often not enough alone for a comfortable retirement.

Step 4: take advantage of employer and tax help

• Make sure you get the full employer contribution. If your employer matches contributions above the minimum, increasing your payments can be like getting a pay rise.
• Use tax relief. Pension contributions receive tax relief. See workplace pensions explained.
• Increase contributions when you get a pay rise. Put part of each increase towards your pension.
• Use ISAs for flexibility. See ISAs explained.

Step 5: check your progress

• Check your pension statements each year
• Use the pension calculator on MoneyHelper to see if you are on track
• Combine old pensions or at least know where they are; the Pension Tracing Service can help
• Review when your circumstances change, such as a new job, marriage, divorce, children or inheritance

If you are behind

• Increase contributions, even by 1 or 2%, and increase them regularly
• Delay retirement by even a year or two. It gives you more years of contributions, a larger pot and fewer years of drawing income.
• Reduce planned spending in retirement
• Fill gaps in your National Insurance record if worthwhile
• Defer your State Pension, if it makes sense for you
• Use your home equity later in life, if appropriate. Get independent advice first.
• Work part-time in the early years of retirement
• Check for benefits, such as Pension Credit
• Get free guidance from MoneyHelper and Pension Wise

If you are in debt

If you have expensive debts, paying them off is often a priority, but do not abandon employer pension contributions, because they are valuable. If you are struggling, get free advice from StepChangeStepChange Explained: What It Does and How It WorksWhat the debt charity StepChange offers, how its free debt advice and debt management plans work, who it suits and what to expect when you contact them.Read more →, Citizens Advice or National DebtlineNational Debtline: How It Works, When to CallWhat National Debtline is, who runs it, what it can help with, how to get free advice by phone, webchat or online tools, and what to expect.Read more →. See how to deal with debt.

Factors that can change the picture

• Inflation, which reduces what your money can buy
• Investment returns, which are uncertain
• Living longer than expected
• Care costs, which can be significant
• Changes in tax and pension rules
• Health changes
• Family responsibilities

A simple worked example

Suppose you are 35, earn £35,000 and want about £25,000 a year in retirement. You expect the State PensionThe UK State Pension ExplainedHow the UK State Pension works: eligibility, qualifying years, State Pension age, how to check your forecast, deferring, and filling gaps in your record.Read more → to provide roughly £11,000 of that (check your own forecast), leaving a shortfall of about £14,000. Using the 25 times rule, you would aim for a pot of around £350,000 in today's money. If your workplace pension already holds £20,000 and you pay in 8% of qualifying earnings, you can test how far that gets you with the calculators on MoneyHelper, then see what happens if you add 2% or retire a year later. The figures here are for illustration only and are not a forecast or a recommendation.

Common mistakes

• Waiting until your forties or fifties to start
• Opting out of auto-enrolment without a strong reason
• Forgetting about old pensions
• Assuming the State Pension will be enough
• Ignoring charges and investment risk in a long-term pot
• Taking money out too early, which can mean paying tax and losing years of growth