Are we saving enough for our future?

Saving for retirement is hardly on the priority list when we’re in our 20s or early 30s enjoying life. Retirement seems too far away and the money is probably a bit tight when we’re just starting our careers 🧑‍🎓.

There’s a whole lot to pay back and save on too these days - student loans, house deposits, weddings, cars, holidays, family. The list just goes on.

Looking at the UK wealth statistics, we seem ill prepared for retirement. With median household savings of £6,800 and an average pension pot of £87k around retirement age, this is hardly enough to support a comfortable retirement.

And by retirement I don’t just mean the age when the state pension kicks in, but rather when and how we actually want to retire 🏝️.

Having the choice and the freedom to do so could be life changing, so it’s important to start thinking about it early. Let’s not forget that our generation will need to fund a much longer retirement period too.

The average life expectancy calculator tells me I could have 1 in 4 chance of living up to 96! I would need to fund more than 35 years of retirement, which is a pretty long time. I wouldn’t want that to be a miserable experience.

💰 How much do I need?

It depends on a few things, so it’s worth considering the following:

• At what age do you wish to retire?

• What kind of lifestyle you wish to have?

• Will you have any housing costs at that stage?

• Are you likely to be sharing costs with a partner?

According to PLSA, for comfortable retirement we would need £59,000 yearly as a couple, an income of £29,500 each. Considering that the current state pension is only £10,600, we would need to fund an additional £18,900 per year.

Considering 4% drawdown rule, each person’s pot would need to be £472,500 (£18,900 × 25) to fund it. This might sound like a huge amount, but it can come from a workplace pension or a SIPP as well as other savings and investments.

If 68 sounds like too long to wait (it sure does!) and you’d like to retire earlier, you would need a much larger pot in order to fund it.

🛠️ Tools I’m using to build my pot

One of the most powerful things helping me build my pot is investing. Through compounding and time, I will need to contribute far less money than I would if I just put my money in a savings account.

For example, in order to accumulate a pot worth of £486,000, I would need to invest £600 monthly into a global index fund for 25 years (assuming 7% inflation adjusted returns) 📈.

Some of this investment can be split into a workplace pension and the rest in a stocks and shares ISA. An ISA is a lot more flexible, so you could draw your money much earlier if you choose to. Plus you don’t pay any tax on it!

My weekly recommendation

Anyone who hasn’t seen Sex & The City? The Financial Diet channel has done a great analysis on how this series potentially ruined women’s relationship and attitude to money.

Let me know what you think!

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Until next time ✌️

Lina at Money Blues