How much should you save for retirement? The answer depends on your age, income, and other factors.

Retirement means different things to different people. For some, it's a time to relax and enjoy life. Others see it as a chance to travel or spend more time with family. Whatever your plans, it's important to start saving now to ensure you'll have enough money later in life.

According to the Office for National Statistics (ONS), the average person in the UK has £1,500 saved for their retirement. That's less than half of what they would need to live comfortably for the rest of their lives. If you want to retire early, you'll need to save even more.

The amount of savings you need will depend on how long you plan to work before retiring, whether you want to rely on state pension benefits alone or supplement them with private pensions, and your personal circumstances.

Today I will be covering the average amount saved by age for retirement. These numbers, being averages may not suit your needs depending on your life circumstances. But if you are curious on how you stack up compared to your peers then this is the article for you.

These savings include anything from emergency fund savings to investments for income for retirement. Knowing these values may help you set some savings goal so you can set aside some of your monthly income.

Savings By Age Group

The image above shows data provided by ONS. You can see the percentage of the population between specific ages representing their savings. You can see that the trend over time shows that peoples wealth tends to grow.

At the start, the highest bar was the one representing less than -£5k but by the end, the largest savings bar was over £100k. Using this you can see where you stack up for your age bracket.

 

The Different Rules

In the finance world, there are many simple rules of thumb that people use to help in certain financial situations. There are also ones that help with this situation. If you want to figure out how much you should have saved up to retire at the typical age then you can use the following rules.

In an article by CNBC they state the different goals as follows. By age 30 you should hope to have saved 1 times your annual income. Therefore if you are earning £25,000 per year then you should have £25,000 saved. By age 40 you should aim to have 3 times your annual income saved. So if you are earning £50,000 per year then your goal should be £150,000.

By age 50 you should have 6 times your yearly income saved. And by age 60 you should have 10 times your yearly income saved in order to fund your retirement.

This is just a rough guide and does not take into account any additional expenses such as children leaving home or medical bills. It is simply meant as a guideline.

I believe however these rules are flawed. Although I think it is a good start, I believe we should try to hit the 4% rule. I discuss the 4% rule in my other article below:

Understanding the 4% Rule and Retirement Income

The 4% rule states that after retirement you can withdraw 4% per year from your investments without ever running out. This is aided by the fact the stock market returns an average of 7-10% per year. Using the 4% rule as our guide, that would mean our retirement goal would be 25 times our desired income (25 x 4% = 100%).

This of course means you have to accumulate 25x the amount you likely wanted as opposed to 10x however with this goal set you would be able to retire and live of the investments indefinitely without running out. (in theory). 

This amount of money invested should then cover all living expenses as it would be providing a sufficient annual income and monthly income.

Summary

Although saving money is important, it is even more important to save enough money to provide for yourself throughout your life. The best way to do this is to save regularly and consistently. Starting with an emergency fund is a good way to protect yourself against any unexpected expenses. Having an emergency fund will lay the foundation for further savings and investments.

If you need financial advise or assistance then contact a financial professional. Everything I say within my blog is based on my opinion and findings in the last 4 years investing. If you enjoyed this post then consider sharing it on social media and feel free to leave any feedback in the comment section below.

Thanks for Reading!

FAQ

How to Stay on Track

The point of benchmarks isn’t to make you feel superior or inadequate. It’s to prompt action, coupled with a guidepost to inform those actions, even if that means staying the course. If you’re not on track, don’t despair. Focus less on the shortfall and more on the incremental steps you can take to rectify the situation.

Source: (troweprice.com)

How much should you save each month?

Retirement data can be compared and contrasted with expected savings data to see how much people should be saving each month. On average, Britons save roughly £105.43 per month. However, this figure varies significantly depending on an individual’s income level. The average UK savings amount to approximately 8.21% of their monthly income.

Source: (blog.moneyfarm.com)

How much do you need to save in your 20s?

As you embark on your career and set the path for future finances, your 20s is the time to Using the 50/30/20 model, you could be aiming to save upwards of $500 every month (or as close to 20% as you can). Saving where and when you can and being set strong savings habits.

Source: (ally.com)

How to save money at age 25

Even if you can only save 5% or 10% of your income, that's still a good start if you can commit to increasing that percentage as your income goes up. Follow these tips to boost your long-term savings rate:

Source: (fool.com)