A £15,000 A Year Pension Is Enough To Buy Happiness

Working out how much money you might need to spend each year for a comfortable retirement is one of the great mysteries of pension saving.

However, a new industry study reckons people feel comfortable having around £15,000 a year and that feeling of financial satisfaction does not improve if the level of income rises.

The figure comes the National Employment Savings Trust (NEST), the agency responsible for running the state-enrolled pension scheme.

The two variables retirement savers have to consider is how long they are likely to live and how much cash they need to pay the bills and pay for the odd treat or luxury.

The NEST survey found that when the cashometer reaches somewhere between £15,000 and £20,000 a year, most people take their foot off the retirement savings pedal and reckon they can survive retirement without too many money worries.

Retirement target

In percentage terms, the research showed that 43% of retirement savers were satisfied once they hit the £15,000 a year income bracket, while only a quarter felt the same on less.

The NEST study suggests that anyone earning less than £15,000 a year in retirement would have problems paying their food and utility bills and would have no spare cash for emergencies, holidays or treats.

The aim of the research was to give retirement savers a target for how much money to stash away while they are earning.

As the new flat rate state pension is expected to come in at £144 a week, which already takes most people halfway towards the target.

Young retirement savers just starting to work could get away with the minimum NEST contribution of 3% or 4% of earnings a year to make up the rest.

Cutting out treats

But the older someone starts saving for retirement, the more they have to put away each year. A 30 year old making minimum contributions would pick up a pension of around 11, 250 a year, while a 40 year old would just breach the £10,000 a year barrier.

NEST also suggests that retirement saving would be easier if workers gave up some little luxuries every week.

Taking a flask instead of buying coffee or foregoing a takeaway meal once a week could easily free up 312 or so each week that could go unmissed into a pension.

Pension experts talk about retirement income in terms of replacement rates.

Tom McPhail of financial firm Hargreaves Lansdown explained that someone retiring on a salary of £15,000 needs a pension income that replaces around 80% of their final salary, while someone on £30,000 might want around 60% or so.

That means the less someone earns, the higher the replacement rate needs to be to provide a living income.