How much will you need in your pension pot to fund your retirement lifestyle?

The PLSA highlights that the full annual new state pension – currently £11,973 – will help fund much of the minimum standard but you will need a larger pension pot to buy an annuity or earn enough from drawdown for a moderate or comfortable retirement.

Analysis by Quilter for MoneyWeek suggests that a single person would need a pension pot worth £459,000 to get a moderate level of income from an annuity, rising to £738,000 for a comfortable retirement.

A couple would need £515,000 to purchase an annuity for a moderate lifestyle and £929,000 for a comfortable one.

This assumes an annuity rate of 5.34% for a single person and 4.79% for a couple.

The amount you need to put away in a pension to build a pot worth £738,000 will depend how far away you are from retirement.

If you have 40 years to save, then you would only need to put away £7,4677 per year, according to Quilter.

But that rises to £12,652 over 30 years and £23,830 over 20.

This assumes a 4% annual real return.

“What the figures continue to show is that it will take a concerted effort to achieve a pension pot required to meet the difference between the income level indicated by the standard and that provided from the full state pension,” says Jon Greer, head of retirement policy at Quilter.

“The earlier that savers understand the difference, then the easier it will be to plan how to achieve it – or achieve the target that’s personal to you. Unfortunately, no one is going to do it for you.”

AJ Bell estimates that to obtain these standards in drawdown, a single person would need a pension pot worth £490,000 for a moderate lifestyle or £790,000 for a comfortable one.

This rises to £515,000 for couples wanting a moderate lifestyle and £890,000 for those seeking a comfortable standard.

The figures are based on annual investment returns of 4% after charges, that income rises by 2% per year and the pot lasts for 25 years.

“Spikes in inflation have clearly made that task harder but there is no magic bullet when it comes to building a retirement pot that matches your goals and spending plans,” says Tom Selby, head of retirement policy at AJ Bell.

“The key is to save as much as you can from as early as possible, taking advantage of the upfront boost of pension tax relief, tax-free investment growth and, where available, employer contributions. While the fund sizes needed to achieve a moderate or comfortable standard of living might be intimidating, making a realistic budget and setting up a regular savings plan can make the task a lot less painful.”

A couple would need £515,000 to purchase an annuity for a moderate lifestyle and £929,000 for a comfortable one.

This assumes an annuity rate of 5.34% for a single person and 4.79% for a couple.

Of course when you retire the annuity rate could be higher or lower, that’s the gamble you take with your retirement.

The income for a moderate lifestyle based on an annuity of 5%, would be

£25,750. Whilst you may not plan on having a pot of £515,00 could you make a plan using a dividend re-investment Snowball for a similar amount ?

Remember you would keep all your capital rather than gifting it to an Insurance Company.