A Comprehensive Guide to Retirement Savings and Achieving a Comfortable Lifestyle

Recent research has revealed the significant savings needed throughout a person's life to achieve a comfortable retirement. For those in their 20s, the study suggests starting to save nearly £500 per month. This amount increases substantially every decade.

The research indicates that a 35-year-old should aim to save £841 monthly. This figure jumps to £1,703 for a 45-year-old and a substantial £4,508 for someone aged 55. These figures are designed to generate a "comfortable" retirement income, as defined by the Pensions and Lifetime Savings Association (PLSA).

The PLSA defines a "comfortable" retirement as providing financial freedom and the ability to enjoy some luxuries. This includes the possibility of taking a few holidays each year, dining out regularly, and having funds available for home maintenance. The next level down is "moderate," offering financial security and flexibility, followed by the "minimum" level, which covers basic needs with some potential for leisure activities.

To achieve a comfortable retirement, assuming a retirement age of 65, a pension pot of £700,000 is considered ideal. However, this depends on various factors, particularly if the individual chooses to purchase an annuity. An annuity provides a guaranteed, regular income for life in exchange for a lump-sum payment. For a single person, the PLSA suggests a fund of approximately £540,000 to £800,000 is needed to generate a comfortable annual income through an annuity.

From age 55 (rising to 57 in 2028), savers can withdraw 25% of their pension as a tax-free lump sum. This can be taken before purchasing an annuity. Another popular option is pension drawdown, where the pension pot remains invested, and a regular income is drawn from it. The longevity of the pot depends on its investment performance.

Additional research provides guidance on savings targets at different life stages. By age 30, experts recommend having savings equivalent to one times your salary. For example, someone earning £30,000 should aim for at least £30,000 in savings, including both pension and non-pension savings.

The recommended savings targets increase with age. By 40, the target is twice your salary, and by 50, it's three times your salary. At 60, the target rises to six times your salary. Government data indicates that the average savings in the 55-64 age bracket are £178,745.