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How much should I save for retirement?

Working out how much to save for retirement is the crux of your retirement plan [1]. Every penny you invest in a pension now is a penny that will grow and compound [2] for years to come.

On the other hand, you only live once, and you may not want to endure much more frugality during your working life than you need to in order to meet your retirement income goals [3].

The most important factors when figuring out how much to save for retirement are the ones you can control:

The uncertainty of the future makes me err on the side of saving and investing more now, while I still can.

By saving more money, you reduce the chances of one of the less controllable factors scuppering your plans.

Save more as you age

Your contribution levels must also take into account the arch-nibbler – inflation [5] – imperceptibly eating away the value of your pension contributions over time.

Most retirement calculators [6] assume that you’ll increase your contributions every year to keep pace with inflation. Make sure you check your calculator’s inflation assumptions so you understand how your savings rate needs to adjust.

Now is also an ideal time to go back to your budget planner [7] to subject your outgoings to the pointless tat test [8].

What are you spending money on that you can happily live without? The more unnecessary expenses you can whittle away, the more you can save, and so the less you may need to live on in the future.

Remember that working out how much to save for retirement is just one part of this equation. Check out our main article on how to create a pension plan [1] for more on the other factors you need to consider.