This article was last updated on 20/07/2023
‘How much is enough?’ is one of the ultimate questions we can explore about pensions. Also it’s potentially a huge unknown for most people. How much do you have in your pension pot/s now, how much are you contributing on a monthly/annual basis and how much is your employer contributing? What might this be worth in retirement to ensure that you have enough money for the rest of your life? I recently explored this topic with a wide range of financially savvy friends.
I chose people of different ages, backgrounds and, therefore, life stages. There was a person in their 20s all the way through to a person in their 70s. It was fascinating insight into the financial details of people’s lives. And demonstrated perfectly that no individual is the same, with attitudes to how much is enough varying hugely in terms of value and expectation.
As well as asking each case study ‘how much is enough?’, I also asked them if they had any tips for people reading their stories. Tips on how to build a pension, how to keep track of it, and how to get to a position where you’ll have enough along with knowing when you have enough. I want to share these tips with you here, with a reminder of each person I spoke with.
Age 20s
I spoke to Jordon, founder of money saving website Jordon Cox. Jordon says:
“It’s a good idea to keep tabs of how much you have in your pension every once in a while. It’s good to know you’re on track and this can help you decide whether you need to put more or less into your pension to reach your retirement goals.”
Jordon’s right, keep an eye on your pension balance and how it’s growing over time, but maybe don’t check it too often as pension pot values can go up and down with the movement of the markets. I’d suggest comparing your current pension value to what it might be worth in the future when you might be thinking of accessing the money (this is currently age 55, rising to 57 from 2028). This can easily be done using the PensionBee pension calculator. When fully informed you can take action if you need to be adding more to your pot.
Age 30s
Nicola is the founder of Frugal Cottage, a teacher and advocate of FIRE (Financial Independence, Retire Early). Nicola says:
“The best tip I can give is to get started! It can be quite daunting to be planning for a long time in the future, but time will play in your favour. Then, get used to tracking income and expenses; really know where your money goes month to month. Then, start to look at what you want to achieve; I use monthly goals to keep me on track.”
I love this approach and guidance from Nicola who is well on her journey towards financial independence. The tracking of income and expenses is a really important point to make about building up savings for the future. Once you know exactly what you’re spending you can address any overspend with budgeting. And when you have a difference between income and expenditure this money can be directed into short, medium and long-term savings.
Age 40s
Pete is the founder of the Meaningful Money podcast and website. Pete says:
“The question of how much is enough is unique to each individual. Ultimately, it comes down to money in versus money out. If you have more going out than is coming in - as is the case for most of us in retirement - you’ll need to make up the difference by drawing off savings, be that pensions or investments. ‘Enough’, then, means having an amount that you can draw from to fill that gap indefinitely.”
Beware of the Danger Zone (this is the term Pete uses to describe the early retirement years) because this is when savings tend to get most ravaged. The combination of free time, good health and accessible wealth means that this is when the most amount of money gets spent, and if it isn’t managed carefully this can do irreparable damage.
This is essential guidance from Pete for the early years when you might start to access your retirement savings. As already mentioned, this is from age 55, or 57 from 2028 for private pensions and most workplace pensions, however you should check your pension paperwork for more information. If you’re planning to access your pension money earlier you’re likely to use a lot more in your 50s and 60s than later in your 70s, 80s and 90s. You can use a drawdown calculator to help with these calculations.
Age 50s
Faith is a fellow PensionBee ambassador and is the founder of Much More with Less. Faith says:
“Despite being in my 50s I’m still putting lots into my pension, as it gets topped up with free money in tax relief from the government, cuts my income tax bills, and I can get my hands on it if needed in just five years’ time. (Faith can access her private pension at 55 in 2026)
My main tip for retirement saving is to start early and keep plugging away, because those early contributions will be turbo-charged by time.”
Sound guidance here from Faith; the best time to start saving into your pension is as young as possible, the second-best time is now. The benefits of saving in a pension from your 20s will include investment growth over many many years and the benefits of compounding.
Age 60s
Nick is a 65-year-old semi-retired freelance writer. He’s the founder of Pounds and Sense. Nick says:
“If you’re aged 50 or over, you can book a free Pension Wise appointment to discuss your pension options with a trained adviser. Pension Wise is a government service that offers free, impartial guidance about your defined contribution pension options.
Whatever your age, it’s important to think about how much income you will need in retirement and plan accordingly. A recent survey by Which? magazine found that for a comfortable retirement (by no means a luxurious one) couples typically need £28,000 a year and single people £20,000. Your State Pension will only cover part of this, so it’s essential to ensure you have a large enough pension pot to bring your income up to the required level when the time comes.
My thoughts as a self-employed person in my 40s
I’ll end this article with a few tips from me, based on experience and learnings with my own pension. I didn’t start saving money into my pension until I was 32. I was a late starter, a huge financial regret. The consequence of this is that I’ve missed out on contributions from myself and my employers for 10 years of my early career, plus the compounding effect of these contributions increasing in value.
Alas, this is the past and there’s nothing I can do to change this. All I can impact is the future! Good life lesson in general is that. I did start to contribute to a workplace pension from age 32 to 37 and built an OK sized pot. I became self-employed aged 37 and consolidated my pots with PensionBee and now add pension contributions on an adhoc basis.
I’ve set up a pot within my Starling business banking for pension contributions. Every time I receive invoice income, I go to my pots section of my app and allocate money across them. Some money goes to the monthly bills/spending pot, some goes to tax, some goes to the holiday pot, and some goes to my pension pot. I then transfer this money over to my pension every few months. I only transfer money into my pension when I’m confident that cash flow is good, for now and for the future. Also when my emergency fund is fully topped up with three to six months of essential expenses.
I’ve created a pension pot goal, calculated using PensionBee’s pension calculator. I know my current pension value and roughly what that could be worth at my proposed retirement age of 60. I’ve also calculated how much I need to add on an annual basis between now (aged 44) and then (aged 60) to reach my goal.
This all helps me to feel in control and stay on track with my savings and pensions goals. And hopefully I can retire a bit earlier than 60, ha-ha. Wishful thinking!
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Lynn Beattie is a PensionBee customer and CEO/Founder of Mrs Mummypenny, a personal finance website. She is also an ACMA management Accountant, previously working in commercial finance for Tesco, EE & HSBC. Lynn is a single mum to three boys, living in Hertfordshire, and is the author of ‘The Money Guide to Transform Your Life‘ published in September 2020.
