New study reveals “comfort” pension threshold
20/05/2014
An industry report has revealed that those planning their finances for retirement should be aiming to receive an income of at least £15,000 a year.
The figures show that 43% of retirees who earn between £15,000 and £20,000 felt financially secure. However, just 24% of those earning less than £15,000 after retirement felt financially secure, with many of this group struggling to pay for basic expenditures such as groceries and household energy bills.
Additionally, the figures show that earning over £40,000 after retirement will not make you feel much more secure than someone earning less than this.
Save more from an earlier age
The report also echoed some basic, but important financial advice, which is to save more into a pension fund from an early an age as possible.
For example, in order to earn close to the suggested £15,000 upon retirement, a 22 year old would have to save much less on a monthly basis than someone who starts saving from an older age.
The report claimed that a 22 year old who earns £20,600 a year would only have to make the minimum pension contribution of 4% in order to achieve a post-retirement annual income of £14,260. However, a 30 year old earning the same salary, who makes the minimum pension contribution would only achieve a post-retirement annual income of £10,210.
This trend continues, for example a 40 year old under the same conditions would achieve an even smaller post-retirement income of around £10,210.
In order for those who have left later to start saving towards their retirement might want to consider increasing the amount of money they save into a pension fund so it is above the minimum contribution.
How to save more
The creator of the report ‘Nest’ who are a non-profit organisation responsible for supplying pensions under auto-enrolment released some tips to help people save more towards their pension.
Some money savings tips included:
1. Replacing a takeaway with a home cooked meal just once a week could save £12 a week. If all of this was saved into a pension fund, a 30 year old could save a pot of around £50,000.
2. Bringing a packed lunch into work and putting the savings into a pension fund could save a pot of over £63,000.
However, other people such as Tom McPhail, a Pension Expert at Hargreaves Lansdown have argued that a better way to save would be to aim towards earning a fixed percentage of what you already earn. Those earning less would need to earn a higher percentage of their current income than someone on a higher wage.
For example, it has been suggested that someone on a salary of £15,000 would want to earn around 80% of their income in retirement (£10,000), whilst someone on a salary of £30,000 might only want to earn two-thirds of their current income in retirement (£20,000).
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