Putting money into a pension is an important way to ensure you have enough money to live on once you retire so you can afford and enjoy your golden years.
According to the Pensions and Lifetime Savings Association, a retiree needs to spend at least £43,100 per year for a comfortable retirement, to cover living expenses including eating out a few times a month and going abroad for one holiday a year.
To generate this income, you would need a pension pot of around £575,000 by the time you retire.
Another metric savers use is how much you should have in your pension by a set age, to help ensure you are on track for your aims. Research by the Transamerica Centre for Retirement therefore suggests you should have twice your annual salary saved into a pension by the time you are in your mid-30s.
Data from investment platform Hargreaves Lansdown indicates that its users may well be following this mantra.
The HL Savings & Resilience Barometer shows that the average household headed by someone aged 35-39 has a combined income of £47,536, and excluding all those with no pension at all, they have average combined pension wealth of £95,767 – very slightly more than twice as much.
But you don’t have to worry too much if you haven’t got this amount saved.
How much should you have saved by age 35?
There are plenty of metrics that financial experts suggest when it comes to investing. Another example is having 1.5 times your salary saved by the time you are 35.
But these don’t factor in the realities of life, especially amid rising inflation and high interest rates, which can make it hard to put money away.
Sarah Coles, head of personal finance for Hargreaves Lansdown, said: “The average obscures a multitude of different circumstances. Very few people have a completely smooth, linear progression to their retirement savings goals, and these years contain all sorts of potential for disruption.
“There will be people who studied into their late 20s, those who started a family and took career breaks, those who spent years on lower salaries and those who ploughed everything into other priorities. If you include everyone who doesn’t have a pension in these figures, then on average people are falling a long way short.”
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Max Dymoke, financial consultant at Lumin Wealth, said this benchmark can be a useful reference, but lacks important context and may not be practical for everyone.
What if you don’t have half your salary saved in a pension by age 35?
Dymoke adds that retirement savings are not a one-size-fits-all endeavour.
After all, prioritising pension contributions at a young age isn’t always feasible or advisable as there may be other financial targets such as buying a house or family expenses.
He said: “For many people under 35, focusing heavily on pension savings may conflict with more immediate financial obligations. Rising costs of living, stagnant wage growth, high housing prices, and childcare expenses can make it difficult to allocate a significant portion of income toward retirement without compromising financial stability and quality of life.
“Instead of rigid savings targets, a flexible and personalised approach is often more effective. Individuals should aim to balance long-term savings with present financial needs, ensuring they can both plan for the future and enjoy life today.”
While early savings in one’s twenties can be very powerful thanks to compounding, Gary Smith, financial planning partner and retirement specialist at wealth management firm Evelyn Partners, adds that pension savings can still be amassed very significantly from age 35 even if someone were starting off with zero.
Starting from scratch
You may find you have more money to put into your pension later in life as you progress in your career or pay off your mortgage and once the kids have left home.
He said: “Some people – like entrepreneurs for instance – can have a decade or two of lean earnings and savings but then have much higher income when they are middle-aged and older.
“Some people need less for the retirement they want, some need more.
“One danger with these “thumb in the air” metrics is that people “compare and despair”, where their savings are well behind the benchmark suggested and they give up because they feel they’ve missed the boat.”
Another risk is giving up saving or investing if you do reach the target.
Coles added: “You might hit this measure, and assume you’re on track, but be planning early retirement, or face a change in your circumstances that means you can’t save as much as you get older. Rules of thumb like this might be a useful indication of the average, so you can see whether the second half of your career might need to see more focus on your pension.
“However, it’s not a sign of impending disaster if you don’t hit them, or a sign you’re in the clear if you do.
“It’s far more sensible to check in regularly with where you are using a pension calculator, and then tinker with the results to see what you need to do to get back on track. Then you can take any affordable steps in the right direction.”
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
