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Tom Selby on how much extra you might need to enhance your retirement
Thursday 14 Feb 2019 Author: Tom Selby

Roy's question

‘I’m 45 and have only managed to save £50,000 in my pension, which I know isn’t enough. My aim is to retire at 65 with an income of about £20,000 in today’s prices. I’m also worried about the impact Brexit could have on the economy. Bearing all this in mind, is now a good time to top up my SIPP?’

Tom Selby, AJ Bell senior analyst says:

It’s good that you appreciate a bit more work is needed to achieve your retirement income target, but equally saving £50,000 is MUCH better than nothing (which is the position many people in their forties find themselves in).

To give you a rough idea of what you might need to save to meet your goal, the flat-rate state pension currently provides an income of £8,546.20 a year.

Assuming you get all of this (you need a 35-year National Insurance record to qualify for the full amount), you’ll need an extra £11,453.80 of income each year from your private savings.

You’ll probably want your income to keep up with rising prices during retirement. If inflation runs at 2% and you enjoy investment growth of 4.5% (i.e. ‘real’ growth of 2.5%), a fund of £270,000 should last for 30 years in drawdown.

The reality will be different depending on your fund performance, the economic environment and your withdrawal patterns.

Alternatively, an annuity providing a similar level of guaranteed income for life at age 65 would cost around £280,000 today.

When thinking about how to reach this goal from your current position, it’s best to focus on the long-term rather than getting distracted by issues like Brexit.

As a general rule you should save as much as you can as early as you can so your fund can benefit from the magic of compound growth, so pay into your SIPP with whatever you can afford to do so. You’ll also be getting a boost to any money you save through tax relief.

As prices will inevitably rise as you save – diminishing your spending power over time – we need to factor inflation in to our calculations when working out what you might need to put in.

If we again assume ‘real’ investment growth of 2.5%, you’ll need to save around £7,000 a year in a SIPP to get the private pot of £250,000 you’re targeting at age 65. That works out at about £583 a month, or £135 a week.

If that sounds like too much of a stretch then don’t worry, it’s still worth contributing whatever you can afford in order to benefit from the tax relief top-up and 25% tax-free withdrawals from age 55.

And remember this is just a guide – you should review your retirement strategy regularly to make sure you’re on track.


Send an email to with the words ‘Retirement question’ in the subject line. We’ll do our best to respond in a future edition of Shares.

Please note, we only provide guidance and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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