There are so many different variables when considering the answer to this question, that, there is no universal answer. You really should seek financial advice, as a professional will help you understand and calculate a realistic amount of money. You need to:
- consider what you can afford to pay into your pension
- evaluate your day to day living expenses and liabilities (mortgage, loans, etc.)
these will all affect your ability to increase your regular contributions. If you don’t have the money to make bigger contributions, don’t worry about this too much, it may just mean you’ll have to make higher contributions when you are better off financially. You cannot draw money out of your pension until you reach the age of 55, so you should make sure that any money you invest isn’t needed today.
These are the questions you need to ask yourself when managing savings for your retirement:
What is your pension currently worth?
Looking at what you have right now in your pension is a good place to start. Doing this will enable you to see how your pension is building up and how it may look in the future. From there you can start to make realistic decisions and manage your expectations.
How do you feel about taking risk and how much can you afford to lose?
You know the saying “high risk, high reward”, however, you must consider what you would do if the worst happens and you lose all of your pension savings? Can you afford to live? If the answer is no, then you need to re-think the amount of risk your taking with your money.
Also, you need to realise that an ambitious retirement plan will mean more risk for it to be achievable.
After you have done your calculations, and you realise that your goals seem unachievable, you will need to have a re-think about managing your expectations and if all of this still seems confusing it might be worth seeking advice from a professional.
What does your retirement lifestyle look like?
Your chosen lifestyle will decrease or increase the pot of money you need to have saved in your pension. So, if you calculate that you will need £30,000 a year, you must ensure you can afford it.
Do you know when you plan to retire?
With your state pension, there are benefits to retiring after your state retirement age. Choosing to defer retirement results in your income being increased.
If you are considering taking early retirement then you will need more money in your pension to ensure you don’t outlive your funds.