How much do you need to save for a comfortable retirement?

It's common knowledge that as a nation we're not saving enough towards retirement. But how much do you need to save to retire comfortably?.

The answer obviously depends on what you'd class as comfortable. But for the purpose of illustration let's plump for £18,000 a year, about two thirds of average earnings.

Assuming you qualify for a full basic state pension, we can knock off about £5,000, meaning you'll need to provide £13,000 a year from somewhere when you retire.

If you're fortunate enough to have a final salary pension then it's quite easy to guesstimate how much pension income you'll get, just multiply your total years of service by the scheme's multiple (e.g. 1/60th) and then your estimated salary at retirement (some final salary schemes are a bit more complex, but this is the gist of how they work). So someone earning £30,000 at retirement with 26 year's service in a 1/60ths scheme would expect an inflation-linked pension of £13,000 a year.

However, this assumes that your final salary scheme remains open until you retire and that you remain in the same job - both far less likely these days than in the past.

For the rest of us things are more difficult to predict, as our retirement income will depend on investment performance and, if you save via a pension, annuity rates.

If we assume an annuity rate of 3.5% for a non-smoker in their mid sixties buying an inflation-linked pension with 50% spouse income (on death), then they'd need to have a pension fund of about £370,000 to produce a £13,000 annual income.

How much do you need to save each month to build up £370,000? Well, it depends on investment performance and how long you have until retirement. I've calculated some examples below assuming a 6% annual return after charges:

Years until retirement	Monthly saving required	Value of £370,000 at retirement if 3% inflation	Inflation-adjusted monthly saving required
40	£193	£109,414	£402
30	£378	£148,373	£638
20	£812	£201,204	£1,129
10	£2,266	£272,847	£2,647

The monthly saving required (left hand column) looks quite horrific. But this doesn't take inflation into account - our £13,000 income will buy less at retirement than it does today if prices continue to rise. Factor this in (so that the £13,000 at retirement is in today's terms) with assumed annual inflation of 3% and the required monthly saving (right hand column) is enough to make you weep.

The trouble with assumptions is that they could be wrong. Investment performance, annuity rates and inflation could all end up high or lower than the figures I've used (and, of course, you might choose to retire younger or older), but I don't think they're that unrealistic. The required saving would be lower if we assume a flat (rather than inflation-linked) pension, but I think inflation proofing your pension income is pretty key if you expect to live for a while.

Where does that leave us?

In reality, probably with far less money in our retirement pots than we'd like. Which begs the question, should you bother?

You might decide to live life to the full and, in the words of Roger Daltry, "hope I die before I get old". Trouble is, Mr Daltry is now nearing 70 and looks in fine fettle (albeit I doubt he has to worry about his pension)...

Otherwise I think the only viable approach (if you won't have a decent final salary pension) is to save what you can, invest wisely and hope it's enough. Whether you use a pension, ISA, property or some other route to save for retirement doesn't really matter, the key is that you save into something that's robust, cost effective and has the potential to perform well.

Nevertheless, it's a good idea to keep tabs on your retirement pot and have a feel for what it could be worth when you retire. You could try using our 'How much will I get' retirement calculator - just bear in mind it requires making assumptions (like my very simple examples above), so take the outcome with a pinch of salt.

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