The average couple will need to earn £26,000 a year from their pension to live a comfortable retirement, figures show.
That’s enough to pay for essentials as well as European holidays, hobbies, alcohol and charity giving, the report by Which? found.
To cover just the basics, such as food and drink, gas, electricity, TV bills, transport and clothing, you’ll need to earn around £18,000 between you.
For a more luxurious lifestyle, couples would need to aim towards an annual income of £41,000, unlocking the possibility of extended or long-haul holidays, health club memberships and expensive meals out and have a new car every five years.
For single-person households the typical essential, comfortable and luxury annual retirement incomes amount to £13,000, £19,000 and £31,000, respectively.
This is on top of the state pension - typically around £155 a week - that retirees get from the age of 66.
The type of retirement income someone chooses may also have a bearing on how much they would potentially need to save for a comfortable retirement.
The pension freedoms mean that over-55s can take their income in various ways, including buying an annuity, which will guarantee them a regular retirement income, or drawing money down from their pension pots.
Drawdown allows pensioners to take money out as a monthly or yearly income - but keep the rest invested, usually in the stock market or bonds, so it can carry on growing in value.
An annuity is when you buy a retirement income using some or all of your pension pot.
For single-person households, achieving a comfortable retirement would mean a pot of around £192,290 alongside a state pension to produce an annual income of £19,000 using pension drawdown, or £305,710 through an annuity, the research suggests.
On average, couples need a pot of around £155,000 alongside their state pension to produce the annual income for a comfortable retirement of £26,000 using pension drawdown - or just over £265,000 through a joint life annuity.
The calculations for pension drawdown were based on the saver drawing off all of their income over 20 years from the age of 65 and also making certain assumptions about investment growth, inflation and charges.
People looking to find out more about their options may want to consider approaching the Government-backed Pension Wise service for free guidance or paying for independent financial advice from someone who is suitably qualified.
Jenny Ross, Which? Money editor, said: "For many people, the events of the past year will have caused them to rethink their retirement plans and brought the amount of money needed for later life into sharper focus.
"Our research shows that most people will need to be putting away significant sums if they want to ensure they can enjoy a comfortable retirement - but many do not have access to the clear and accessible information they need to help them plan."
How much you need for retirement - a single-person household
Based on the Which figures, you'll need:
- ‘Luxury’ retirement - £31,000 (pot size of £671,000 needed for annuity; £422,140 for drawdown)
- ‘Comfortable’ retirement - £19,000 (pot size of £305,170 needed for annuity; £192,290 for drawdown)
- ‘Essential’ retirement - £13,000 (pot size of £123,365 needed for annuity; £77,350 for drawdown)
How much you need for retirement - a two-person household
Based on the Which figures, you'll need:
- ‘Luxury’ retirement - £41,000 (pot size of £757,000 for annuity; £442,020 for drawdown)
- ‘Comfortable’ retirement - £26,000 (pot size of £265,420 for annuity; £154,700 for drawdown)
- ‘Essential’ retirement - £18,000 (pot size of £47,325 for annuity; £28,810 for drawdown)
So how much should I be saving?
“These estimates are a useful guide for people to know the retirement that they are roughly on track for, given their current pension pot size. But the amount we should all aim for is very personal and at the end of the day,” explains Becky O’Connor, head of pensions and savings at Interactive Investor.
“While the estimates suggest that someone on an average salary paying the auto-enrolment minimum of 8% throughout their working life who will also receive the state pension should just about be on track for a retirement somewhere between ‘essential’ and ‘comfortable’, it might still be a struggle to manage any unexpected high bills, such as property maintenance."
It's also important to note that the drawdown above would reduce your pot to nothing after 20 years, which means if you lived to be older than 85, you would be living on just the state pension, pension credits and your savings.
“Self-employed people will also need to put more in themselves to achieve the same outcome, as they do not benefit from employer contributions," O'Connor explains.
“It’s also worth bearing in mind that if you are in a defined contribution scheme, as most now are, your pot size is subject to variations in stock market performance," leaving you at risk of heavy fluctuations.
Some experts say the rule of thumb for a financially protected retirement is to aim for roughly two thirds of your final salary each year after you retire.
To do this, you need to take the age you start contributing, half it, add a percentage sign, and contribute that much each year for the rest of your life.
For example, if you start contributing at the age of 30, you'll need to pay in 15% a year for the rest of your career.
But of course the earlier you start contributing to your pension the less of your salary you'll have to part with.
Even just £20 or £30 a month will compound over the years to give you a much better savings pot come the age of 55.
Anyone seeking further advice on pensions can contact the government's Pensions Advisory Service free of charge.
