How much pension should I have in my 20s, 30s, 40s, 50s and 60s? - Times Money Mentor (2024)

It’s important to have a personal pension pot because the state pension is unlikely to be enough to live on in retirement. We outline how much pension you should aim to have saved at which age.

Nine out of ten workers are not saving enough to have a good standard of living in retirement, according to the Institute for Fiscal Studies.

The problem is being made worse by the sharp rise in house prices, which means more people are going to be renting in retirement, or they’ve been saddled with massive mortgages that they will still be paying off in their sixties and beyond.

That means pension savings will have to stretch further than they did for earlier generations.

So how much should you have in your pension?

In this article we outline:

• How much pension do I need in retirement?
• How much pension should I aim to save in my 30s, 40s and 50s?
• How to save for your pension in your 20s
• How to save for your pension in your 30s and 40s
• How to save for your pension in your 50s and 60s

Read more: ‘I retired at 52 with a tax-free income of £18,500 a year’

How much pension do I need in retirement?

To get an idea of how much you need in your pension pot, you should think about the lifestyle you want when you retire.

Do you hope to be jetting off on luxurious holidays? Then you are going to need a higher income compared to someone who plans to spend most of their time gardening and reading books.

Think about your regular outgoings: will you have similar expenses after you retire, or can you live on a smaller budget? For example, most homeowners hope to have their mortgage paid off before they retire, reducing their outgoings.

To make it simple, one rule of thumb is to aim to have about two-thirds of your salary as an annual income in retirement. So if you earn £40,000 a year, you might want to aim for a retirement income of £26,600.

Bear in mind that the cost of living rises over time (think how much a chocolate bar cost when you were a child, compared with today). So you will need enough money to keep up with living costs when you eventually retire.

We don’t know what those costs will be exactly, but the Pensions and Lifetimes Savings Association (PLSA), which crunches the numbers annually, says retirees currently need a minimum of £14,400 a year to meet basic living costs, with a small amount left over for fun – it’s included £15 a fortnight for takeaways in its calculations.

For a lifestyle that feels more financially secure and allows for a bit of flexibility over spending, someone retiring today would need £31,300 a year. The PLSA calls this a moderate standard of living.

You can see the full breakdown of spending and how it adds up for different lifestyles on the PLSA’s website. The table below can give you snapshot:

Be honest with yourself about what kind of spender you are. Are you the eco-conscious sort who tries not to buy unnecessary things? Or do you prefer to have new clothes and lots of evenings out?

Remember that it’s not just spending on yourself that you need to think about. A lot of people want to treat loved ones, so the cost of paying for dinner on a special occasion or buying a housewarming gift, for example, needs to be factored in.

Being single versus in a couple

It costs more to get by as a single person – this isn’t fair, but sadly it’s true.

The figures above are how much a single person would need. The amount someone needs if they’re in a couple – assumed to be sharing costs – are lower.

For example, the PLSA estimates a single person will need £14,400 a year for a basic standard of living. For a couple, the combined amount is £22,400, which works out at £11,200 each.

How much do couples need in retirement?

This is the total amount for two people, for three different lifestyles:

• Minimum: £22,400 a year
• Moderate: £43,100 a year
• Comfortable: £59,000 a year

How much does a single person need in retirement?

• Minimum: £14,400
• Moderate: £31,300
• Comfortable: £43,100
  

The problem with this is that many people who are married or coupled up during their working life later end up single, after divorce, separation or being widowed.

This is especially the case for women, as men have a lower life expectancy.

Even though it isn’t a nice topic to dwell upon, it’s important to bear this fact of life in mind when thinking about your future finances.

How the state pension will help in retirement

The full state pension is £11,502.40 for 2024-25 and this goes a long way towards meeting the minimum £14,400 that a single person would need to get by.

So it’s important to make sure you’re on track to get the full state pension in retirement.

Read more: Four ways to boost your state pension

How much pension should I aim to have in my 30s, 40s and 50s?

It’s a lot easier to retire in your sixties with a big enough pension if you’ve broken it down into smaller goals that you hit in your thirties, forties and fifties.

Most people have defined contribution pensions, where the amount you end up with at retirement depends on how much you have paid in, how much your employer has added (if it’s a workplace pension) and how your investments have performed.

So-called savings benchmarks suggest you’re on track if you have built up a certain amount in your pension by a certain age.

Savings benchmarks by age

• Age 30: Equivalent of your salary
• Age 40: Three times your salary
• Age 50: Six times your salary
• Age 60: Eight times your salary

Figures from Unbiased

These figures can seem huge. So it’s important to remember that:

• You don’t save the full amount – the boost from investing is significant
• Employer contributions and tax relief also add up considerably, and make it easier to reach your target
• The earlier you start the better – this is a marathon not a sprint

Read more: Top-rated personal pension providers

How much will I need in my pension pot at retirement?

The answer to this very much differs from person to person. It depends on what your expectations of retirement are, whether you have paid off a mortgage or not, whether you’re single or part of a couple, and other factors.

Having £200,000 in a pension could mean having an income of £8,000 a year, if you withdrew 4% a year and didn’t take a lump sum out when you retire. These figures are from Pension Bee.

Add on the state pension, which is just over £11,500 currently, and you would have £19,500 a year in retirement. This is halfway between the amounts you need for a minimum and moderate standard of living, with the PLSA figures above.

If someone started contributing to a pension at 22, they would need to pay in£282.89each month to have £200,000 in their pot by 66, which is the current state pension age. This assumes that their contributions stay the same throughout their working life.

A decade later, at the age of 32, they would have accumulated £35,322 in their pension pot, assuming their investments grow by 5% each year, according to Hargreaves Lansdown.

After another ten years, at 42, their pension pot would be worth £74,626.

By 52, the pot should have grown to £120,216.

At 62, it will have reached £174,866.

Then it should be on track to reach £200,000 by the age of 66. In the table below we outline the figures:

Read more: What does a pension pot worth £37,000, £150,000 and £500,000 give you?

How much pension should I aim to save each month?

It’s never too late to start saving into your pension. But if you start later in life then your monthly contributions will be higher, as you’ll have to make up for lost time.

This is partly because your pension investments won’t have as long to grow and they benefit from the power of compounding. This is where the return on the investments is added to your pot, which means the following year there’s a bigger amount invested, and the investment returns are added on again, and so on.

Here’s how much you need to save into your pension at every age:

• If you start saving into your pension at 22, you would need to pay in £283 a month to reach £200,000 by 66
• But if you wait until you’re 32, you would need to contribute £402 to your pension each month
• If you start at 42, you would have to save £615 a month to reach the £200,000 goal on time
• Leave it even later until you’re 52, just 14 years away from a retirement age of 66, and you would need to contribute £1,122 each month

The figures above are from Hargreaves Lansdown, and they assume that your contributions stay the same until you are 66 and that your investments grow by 5% a year.

When trying to figure out how much to pay into your pension, there is also a rule of thumb:

• Take the age you start contributing
• Halve that number and add a percentage sign to it
• That tells you how much of your salary you should contribute each year for the rest of your working life

So for example, if you start contributing at the age of 24, you will need to pay in 12% of your earnings each year.

But of course, it might not be affordable to save that amount of money each month for your entire working life, particularly if you take time off work to retrain, or to care for children. With this in mind, you might want to pay in more when you can afford to. This can be a way to make up for potential future gaps in your contributions.

Read more: How much should I pay into my pension?

How to save for your pension in your 20s

When you’re in your twenties, you have time on your side. As retirement is so far away, anything you put into a pension now will really have time to grow and be worth a lot more.

Pensions will probably be the last thing on your mind. Most people are focused on saving a deposit for a first home –which is important too.

But it’s actually the best time to start paying into a pension.

So once you have cleared any high-interest debt such as credit cards or overdrafts and built up some savings for emergencies, you could start putting spare cash into your pension –however little.

Zoe Dagless from Meliora Financial Planning gives the following example:

• If you save £262 each month from the age of 25, you will be able to accumulate more than £500,000 by the time you’re 65, based on an annual investment return of 6%
• Just £125,000 of this £500,000 is from your contributions. The remaining £375,000 is from investment growth

As you’re several decades from retirement, you also might want to invest in more higher-risk assets such as stocks and shares. Higher risk means potentially higher returns –but it also means you’ll have to stomach bigger losses.

When the money’s in a pension, and you won’t be using it for 30 years or longer, there’s plenty of time to make up any losses from investing.

If you have a workplace pension, it may be possible to change the level of risk to something higher. You can usually do this online by logging into your pension provider’s website.

Read more: Should I retire early? The pros and cons

How to save for your pension in your 30s and 40s

Once you’ve reached your thirties and forties you’re probably earning more than in your twenties –but your outgoings may be higher too.

During these years people tend to find their income is swallowed up by childcare costs and paying their mortgage.

But if you have some spare cash, if you earned a bonus or received a pay rise, consider contributing something more to your pension.

If your employer offers to match your pension contributions then this can be worthwhile as it’s effectively like getting a pay-rise –although you won’t see the money until you’ve reached an age when you can access your pension (55 years old currently, but scheduled to rise in the coming years).

If you’re self-employed, you might want to open or top-up a low-cost self-invested personal pension.

You’re still a few decades away from retirement, so it’s still worth investing in riskier assets such as stocks and shares, which give you the chance of higher returns. Again, you have plenty of time to ride out any stock market wobbles.

By the age of 40, you might have several pension pots. This is because every time you start a new job, your employer will have set up a pension for you under the auto-enrolment scheme.

So it might be a good time to think about consolidating your pension pots to make them easier to manage and potentially reduce the fees you’re paying to the different providers.

How to save for your pension in your 50s and 60s

With more years of work behind you than ahead of you, it’s time to look at the big picture.

We mentioned above that if you’re decades away from retirement then you can afford to take on a higher level of investment risk. The reverse is also true. As you get closer to retirement you might want to reduce the level of investment risk.

This is because when you need to focus more on preserving your capital –rather than risking big losses that you won’t be able to recover in time for retirement.

A traditional approach to take with investing is to match your age with the percentage of bonds you have in your portfolios. Bonds are loans to companies or governments, which pay interest, and they’re considered lower-risk than stocks and shares.

For example, at the age of 50, 50% of your portfolio could be in bonds.

If you don’t feel that you have enough in your pension pot to meet your goals, you may be tempted to make riskier investments. But it’s better to increase your pension contributions in the last few years of your working life, than go all-in with investment risk.

If you have a workplace pension and you haven’t switched away from the default investments then you will probably be invested in a “lifestyling fund”. This is where your pension provider automatically moves you away from higher risk assets, such as shares, towards less risky assets, such as bonds, in the years before retirement.

But even if you are in a lifestyling fund where the strategy is managed for you, it’s important to keep checking that your investments still meet your needs.

Read more: Best pension drawdown providers

How to save after retirement

As you get closer to retirement age, you need to think about how you plan to withdraw your pension money when you stop working.

Helen Morrissey from Hargreaves Lansdown said you might follow a different strategy if you plan to use income drawdown as opposed to buying an annuity.

With income drawdown, you withdraw some money from your pension and leave the rest invested. In that case, Morrissey said, you might want a large proportion of your pension to be invested in shares to give it the best chance of growing.

Find out: Should I go for an annuity or drawdown?

Plus, here are our favourite pension drawdown providers.