This article appears as part of the Money HQ newsletter.

Pension Awareness Week is an initiative that aims to raise awareness about the importance of saving for retirement.

As people are living longer and the landscape continues to evolve, it’s important to be able to plan effectively for your retirement years and make the most of your pension opportunities – that’s where a financial adviser can help.

Whether you’ve got 20 years before you have an idea of just how much money you’ll need for a comfortable lifestyle once you stop earning a regular salary.

What’s a pension?

A pension is a way to ensure you have money aside to live with when you retire from your job. It gives you an income that will help you with the cost of living. Depending on who your employer is or if you are self-employed, you should be offered the opportunity to pay a set amount from your way into a pension pot each month. That will then accumulate over a number of years, of which you will be able to withdraw at your retirement age or earlier. Depending on your earnings and circumstances, you are able to change the amount that you put into a pension pot each month.

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How do I plan for retirement at different ages?

The earlier you start planning for retirement, the more likely you are to build up adequate savings for the lifestyle you want when you stop working. Real life gets in the way though but a financial adviser can help you understand the things you should be thinking about at certain ages.

How much money do I need to retire?

Helpfully, the Pension and Lifetime Savings Association (PLSA) predicts approximately how much individuals and couples will need in their pension pot, to have a comfortable, moderate or minimum standard of living in retirement.

The important thing to be aware of is that these figures have increased in the past 12 months. The PLSA’s latest figures, released in February 2024, show that a single person will now need £14,400 a year to achieve the minimum living standard, a rise of £1,600.

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They would need £31,300 a year for moderate, and £43,100 a year for a comfortable lifestyle, which includes a two week holiday in Europe and several UK mini breaks. For couples, the price tag of these three lifestyles is £22,400, £43,100 and £59,000 per annum.

These figures from the PLSA represent retirement living standards for the majority of the UK (outside of London). Please refer to the PLSA website for further details on London figures.

The minimum living standard covers most people’s basic needs. For example, you could holiday in the UK, eat out about once a month and spend around £600 on clothes and footwear a year. But don’t expect to run a car.

The moderate lifestyle provides, in addition to the minimum lifestyle, more financial security and increased flexibility. For example, you could take a two-week holiday in Europe and eat out a few times a month. And you could afford to run a small car.

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At the comfortable level, you could enjoy some luxuries like regular beauty treatments, theatre trips and at least two weeks in Europe a year.

By putting a ballpark figure on actual lifestyle choices the PLSA aims to help people develop their own personal savings goals based on their individual circumstances and expectations. Having a concrete goal based on things you enjoy doing, such as holidaying, or eating out with friends, is a powerful psychological motivator to keep saving.

Whatever stage you’re at on your saving journey, having a specific income in mind can help you focus on the end goal – and look forward to it!

Your pension income reality check

Many people may be shocked to learn how little income their savings will provide. This is why it’s vital to realise the power of ‘saving sooner rather than later,’ and not simply hoping for the best.

To enjoy a comfortable retirement, the PLSA suggests that you may want to aim for a pension pot exceeding £590.000, even if you qualify for the full annual State Pension of £11,502 (2024/25).

The good news is that a combination of the full State Pension and auto-enrolment in a workplace pension, most people should be able to look forward to the PLSA’s minimum level of retirement.

However, a modest contribution level is unlikely to be enough to get you over the line between the Pension and Lifetime Savings Association’s (PLSA) minimum and moderate lifestyle standards. That’s why leaning into the process, and starting to make proactive financial plans for your later years while you’re still working could – literally – pay dividends.

Ben Stark is a chartered financial planner with over a decade of experience advising businesses and families. He is partnered with St. James's Place Wealth Management.