It’s easy to push saving for your retirement to the back of your mind. Future events have a habit of feeling very distant, until they arrive. It can be a difficult thing to keep track of too; with nobody helping you along the way or checking up on your savings, putting a retirement plan in place can be a lonely experience.

The fact is, most of us are simply not saving enough to enjoy a similar lifestyle to our working days in retirement. A ‘retirement reality’ report from insurer Aviva shows that nearly 1 in 4 employees believe that retirement will be a financial struggle. There are plenty of legitimate reasons why we don’t save enough – more immediate financial concerns will naturally take priority. You can’t save for tomorrow, for example, if it means forgoing your mortgage payments today. A lack of financial education also plays a big role. 85% of young adults, when surveyed, revealed that they wish they had been taught more about finance management through their school and university careers.

The Government’s auto-enrolment workers’ pension initiative has helped and there are around 1 million people saving for their retirement for the first time ever, as a result, but how do the numbers add up?

The minimum auto-enrolment contribution rate is just 5%. But despite this being the minimum rate, more than half of workers believing this is the recommended rate of saving, it’s far from it. The generally accepted figure among experts, if you wish to maintain a similar lifestyle in retirement, is a contribution equal to 13% of your annual income*. Some of this deficit will be made up by  employer’s pension contributions, however, we’re still looking at a wide gulf between actual savings and those that are required.

Investment house, Fidelity, has devised a system it calls the ‘Power of Seven’, consisting of a number of savings goals. Ultimately, it suggests that to comfortably retire at 68, you should have saved the equivalent of 7 times your annual household income.

This rule works quite well for many people.

For example:

• A couple with a household income of £40,000 a year would, according to the rule, need a pension pot of £280,000.
• If they’ve been saving 13% of that £40,000 income, this means that they’d have been living on a gross income of £34,800 a year.
• But provided they’ve repaid their mortgage (assumed to be £750 per month) by retirement, they’d actually need an income of just £25,800 a year to maintain their lifestyle in retirement.
• Assuming two state pensions of £8,000 a year each, their £280,000 pension pot would need to provide them with £9,800 a year**.

We’d point out that the ‘Power of Seven’ doesn’t really work for those households with higher incomes where the state pension would provide a lower proportion of your retirement income. It also doesn’t work well for those still renting in retirement.

There are steps you can take to bolster your pension pot. It’s down to you to take responsibility for your finances, and even small steps like being a member of the works pension scheme and using tax friendly Savings Accounts can be helpful. If you receive a pay increase, perhaps allocate half of it to

your savings or investments and enjoy the other half now. As tempting as it can be, it’s important to foster self control to turn down opportunities for frivolous spending – think about tomorrow and give yourself more options in your golden years.

Contact us for help and advice on funding your retirement.

*Whilst 13% may be sufficient for those starting work if you haven’t started at this level you are likely to need to make even higher contributions.

**Naturally the exact figures will differ from case to case and, whilst they are helpful, it’s important not to rely on ‘rules’ or examples in this article. It’s recommended that you see an independent financial adviser to fully understand your personal situation and have regular reviews with that adviser to keep yourself informed and on track.