Much will depend on the quality of life you want in the future and how much you saved to date.
It can be difficult to know just how much you need to save for your retirement.
How do I know how much to save for retirement?
Deciding how much is enough for your retirement isn’t as simple as giving a single figure that suits everyone. This is because individual needs and lifestyles vary from person to person. But here are a few key things to consider when setting a goal:
- How early into your career have you started saving?
- Would you keep working into your retirement (even part-time)?
- Do you have other guaranteed income to rely on?
- Are you a homeowner?
- Do you expect to continue with hobbies, associations or memberships?
All of these things can impact how much you will need to save to be satisfied with your retirement.
What’s a good target to aim for?
As we mentioned above, setting a hard figure that can apply to anyone would be impossible. Every person will have very different needs and comfort levels when it comes to retirement, so the target savings figures will be very different as well. There can, however, be indicators about whether or not you should consider paying more into your pension or not.
Some reasons why you may not need to pay more into your pension are:
- You started your pension savings early, such as when you started your first full-time job, and have continued (or will continue) to do so until retirement.
- You think it is likely you will continue to work throughout part of your retirement, either in a full or part-time capacity.
- You will have other guaranteed incomes available to you in retirement.
- You currently own your home and the mortgage will be fully paid off by the time that you retire.
- You are already paying additional contributions into your pension above what is required.
- You have considerable existing pension benefits available from previous employment.
Some reasons why you may need to consider paying more into your pension are:
- You only recently started saving into a pension and this is not your first full-time job.
- You are interested in retiring early.
- You have only paid in low contributions so far or have stopped paying into your pension at some point.
- You want to be able to take more holidays.
- You would like to be able to change your vehicle regularly.
- You tend to dine out more frequently or would like to do so in retirement.
- You have hobbies, associations or memberships that you would like to continue enjoying.
Although this is not an exhaustive list of considerations, it can help you develop a clear picture of both what you would like your retirement to look like and how far along you are in the saving process. You may wish to consider taking financial advice or guidance, which you can find more out about on this website.
Are there limits on what you can save?
Yes, there are two limits to be aware of, although these are normally relevant to very high earners:
- The Annual Allowance is the total you can save into pensions every year whilst benefiting from tax relief
- The Lifetime Allowance is the limit on the total pension savings (across all your pensions) you can accumulate without incurring tax charges
What happens after you pay in?
After your money is paid in, it’s invested in a way that is designed to grow your savings over the long-term. Because your pension is designed to help you grow a nest egg for the future, it receives a range of extra perks approved by the government to help your money grow. In addition to any tax relief on what you pay in, your savings will grow largely free of taxes until you decide to draw your retirement benefits. Some types of dividend (a payment made to a company’s investors) are also free from Income Tax.
Together, these perks give your savings the opportunity to grow, giving you more when you retire. Unless you make a specific choice when you join Creative Pension Trust, your money will be invested in our Default Investment Strategy. This means we’ll make all the investment decisions for you and spread your money across a range of different types of investments, for example: stocks and shares; bonds; and cash. Alternatively, we offer a range of user-friendly investments to choose from if you have specific requirements.
To begin increasing your pension contributions, email your HR or Payroll.
See if you’re on track for retirement
Another tool that might be useful in creating a savings target is this pension calculator provided by MoneyHelper, the government-backed financial guidance service . It can help you see if you are on track for a financially secure retirement. You’ll need to provide some basic information about your current salary, existing pension contributions and how much you contribute currently. This will help calculate your likely total contributions throughout your working career.
Important information about pension investments:
- The value of your investments may go down as well as up
- As with all investments, you may not get back what you initially invested