Check where you stand today.

Maybe this all seems a bit theoretical. To ground the facts and figures in reality, try asking yourself why you need a pension.

We also tend to think short term (to buy or not to buy those Gucci loafers?). But having long-term goals will help you determine how much you would need to save.

Let focus on these key questions:

• When do you plan to retire? 35? 75? It is important to remember that life expectancy is increasing so our retirement won’t look like our grandparents’. If you want to have a longer retirement, it will cost you more money.
• How much income would you need to spend your autumn years chilling by the pool drinking mojitos? You may want to live your luxurious dreams of travel or living aboard a yacht, but this needs to be financed. Remember that when you retire, you will not get monthly cash inflows to spend on your current lifestyle but a pot of money to live on.
• If you continue saving at today’s rate, will you be able to do live your best (retired) life? We’re guessing the answer to that last one is a big fat no. The good news is you can use this online calculator to work out your projected retirement income based on how much can put away each month. Although - full disclosure - it may not be good news in the conventional sense because we got quite a shock when we worked out ours!
• What about my state pension? I am paying taxes, won’t the Government take care of me? To be honest it won’t provide you enough to live on. The age at which you can claim the state pension is set to rise to 65 for both sexes by 2018; 66 by 2020 and 67 by 2028. The maximum you can receive from the new state pension is £155 per week, or £8,060 a year.

The recommended sum to put aside each month might seem astronomical right now, but see it as something to aim for, even if it’s not practical at the moment. We like this “retirement savings factor” chart from Fidelity, that shows how much you should aim to have saved along the way to retirement. It is an easy way to check where you are: simply multiply your income at certain age (by age 30, consider aiming to have 1× (times) your salary saved for retirement).

What about you? How much do you have saved on the side?

Photo by Ryan Spencer on Unsplash.