Enjoy a decent retirement: how much you need to save in your 20s, 30s and 40s

Here's what you’ll need for a comfortable retirement and what to do if you’ve left it late to start saving.

How much money do you need to set aside for retirement?

Financial advisory website Unbiased recommends that someone with an average income of around £30,000 would need to put together a pension pot worth around £300,000 to maintain their standard of living in retirement. 

Meanwhile, financial expert Gina Miller says a useful rule of thumb is to have one times your income saved at the age of 30, three times your income by 40, six times by 50, eight times by 60 and 10 times that by retirement age. 

However, according to official figures, the average pension pot at retirement is currently worth around £37,000, suggesting many workers will face a sharp drop in living standards when they retire.

So how much should you be setting aside to ensure you enjoy a comfortable retirement? 

We’ve put together some figures to give you an idea of the kind of money you need to contribute to your pension if you want to maintain your standard of living in retirement.

According to Unbiased.co.uk, you will need an annual income in retirement that is between 50% and 70% of your current income as an employee. 

For the purposes of our figures, we have taken someone earning an average wage (around £30,000) who wishes to retire at State Pension age on an income of approximately two-thirds of their salary, which is £20,000.

We’ve taken into account the full State Pension of approximately £11,502 a year, so the remaining pot would need to generate an income of around £8,498 per year.

Find out more about the 2024/2025 State Pension and how much it pays.

Starting a pension pot in your 20s

The earlier you start, the easier it will be to accumulate a decent pension pot for retirement.

According to figures from insurer Royal London's pension calculator, if someone aged 25 wanted to retire on the basis outlined above, they would have to make contributions of approximately £180 a month to generate income in retirement of around £10,000.

That's 7.2% of their salary before tax. 

This assumes an annual investment growth rate of 5% per year, a workplace pension and employer contributions of at least 3%. 

You will also receive a top-up from the UK Government, which means that for every £80 a basic rate taxpayer contributes to a pension, the Government will contribute £20 to top it up to £100.

So, in reality, the amount of money you are paying into the pension is a lot less than 7.2%.

As you have many years to go before retirement, your adviser will suggest you invest in a diverse range of assets that have the potential to deliver more return over time than this.

Starting a pension pot in your 30s

Delaying starting a pension by 10 years will have a major impact on how much you need to put away every month.

Royal London’s calculations show someone aged 35 would need to save £270 per month to generate an income of £9,700 in retirement - that's 11% of their salary before tax.

Again, it’s worth checking how much your employer is willing to contribute as that will make a difference.

You may also find that your adviser recommends you invest in riskier assets to try and generate better returns.

But there are other things you can do to improve your position.

The figures are based on retiring at age 68, yet many people are choosing to work after this date, even on a part-time basis.

Any extra money you can make will make a difference.

It’s also worth looking at what other assets you have.

When we talk about retirement, it is tempting to just view it in terms of pensions, but other savings can be used.

If you have ISAs or other investments, they can all be used to supplement your retirement income.

Finally, don't make the mistake of assuming that you can rely on your partner's pension or your home.

Starting a pension pot in your 40s

If you haven’t started saving into a pension by your 40s, it can be tempting to think you have left it too late.

Don’t despair – you still have many years to go before your retirement and can still accumulate a decent level of assets.

Figures from Royal London show that someone who starts saving into a pension at age 45 would need to pay £500 a month to generate income of £10,400 a year in retirement.

That's equivalent to 20% of a £30,000 salary. 

This is a lot of money, but remember that you can opt to work for longer to give yourself more time to save.

It’s also worth looking at any pensions you might have accumulated in past jobs to see how much they might contribute towards your overall total.

The amount of risk you take in your investment portfolio is extremely important as it is tempting to invest in risky assets, which have the potential to deliver higher returns.

Unfortunately, such assets can be very volatile and if they fall in value, you might find yourself with a gap in your retirement planning that is hard to plug.

Top things to consider

Take advantage of employer contributions

Many employers will contribute much more than the auto-enrolment minimums mentioned above.

Some employers will even match your contributions up to a certain level, which can have a massive impact on how much goes into your pension.

Don’t set and forget pension contribution levels

Increase them regularly – when you have a pay rise, for example.

Don’t take on too much or too little investment risk

Investing in riskier assets can pay off with high investment returns.

But these stocks may also fall in value, leaving you with a gap in your pension funding, which you may not have time to fill.

Similarly investing in low-returning assets won’t generate the returns you need to meet your goals.

Consider your lifestyle

We’ve chosen the £300,000 figure here as a good amount to aim for but if you earn less than the average wage, you won’t need to save as much to match your current living standards.

Similarly, if you want to do a lot of things in retirement, you may need to save much more.

It’s worth speaking to an adviser to work out what your goals are and how you can get there.