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How much should I save for my pension?
Just how much do you need to put aside to be able to enjoy your retirement? We've got the facts you need to know.
by Victoria Bischoff on Feb 01, 2012 at 10:45Follow @VBischoff
Hardly a day goes by without someone telling us that we're not saving enough for retirement.
So, how much should we be saving?
Unfortunately, there is no one right answer. It depends on a whole host of factors such as your age, income, circumstances, what you want to achieve and so on.
However, regardless of your situation – and ignoring the scary stats quoted by pension companies on this – the key thing to remember is that anything is better than nothing.
And what’s more, it’s never too late to start.
How old are you?
A good place to begin is your age. One frequently cited rule of thumb is to divide your age by two and save this percentage of your salary each year.
So if you’re 30, for example, you should try to save 15% of your earnings each year, if you’re 40, 20%, 50, 25% and so on.
For many people, however, this just isn’t achievable – especially if you’re still raising a family, paying for school fees, beginning to think about children’s weddings and so on. It might be a more sensible idea, therefore, to first work out how much you can realistically afford to spare each month.
What can you afford?
First, calculate your monthly income and deduct essential expenses, such as your mortgage or rent, bills, travel, food etc. Don’t forget to take into account yearly expenses such as your television licence and car insurance.
At this point, you should also consider your debts. If you still owe money on expensive credit cards and loans it may be a sensible idea to pump any extra cash into paying down these debts before you start saving. Otherwise the interest you pay on your debt will outweigh any interest you earn on savings – especially when interest rates are low, as they are now.
Some people, however, prefer the security of having some savings and would therefore rather pay off debts at a slower pace so they can afford to save too. If you’re in your twenties or thirties, you may want to prioritise paying for protection policies for your partner and children. This is entirely your decision.
Save a fiver a day
Your next step should be to look at the sum you’re left with after all the necessities have been accounted for.
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