For most people, saving for retirement is an afterthought. Unfortunately, this means that most savers are woefully underprepared for when they leave the workforce.
Indeed, according to financial services company Aegon, the size of the average pension pot in the UK currently stands at nearly £50,000. Men have saved almost three times more than women with the average male pension pot standing at £76,300 compared to just £24,900 female equivalent.
What's more concerning is that around two-thirds of savers between ages 45 and 54 don't know how much they've saved for retirement according to research from LV.
Put simply, the UK population is saving nowhere near enough to have a comfortable retirement. Figures vary depending on life expectancy, retirement age, and interest rates, but according to Aegon, a pension pot of around £100,000 would provide an income of about £5,000 per annum in retirement -- hardly enough to live a comfortable life.
How much do you need?
The simple way to give a rough estimate of how much you need to have put away to retire comfortably is to take your desired annual income in retirement and divide it by 4% (the amount you'll withdraw each year). The average wage in the UK is around £28,000, so to retire at this level of income, you need to have put away £700,000 (this excludes any state pension additions).
Getting to this target is easier the earlier you get started. For example, if you aim to retire at 70 and start saving at 20, you need to put away £270 a month at an interest rate of 5% to hit the £700,000 target. However, if you put off saving until you hit 50, at the same rate of interest you'll have to put away £1,700 a month. It's better to start earlier.
What if you've not saved enough?
If you find that you've not saved enough for retirement, there's no need to panic. There are still plenty of options available that don't involve going back to full-time work.
Today it has never been easier to pick up some freelance work online, which can help supplement your income. A part-time job will also help cushion the blow of retirement.
Another tactic is to make your money work harder for you. High-quality dividend stocks can produce double-digit returns, which might be too risky for some investors, but if you're still a few years away from retirement, then this could be the right strategy for you.
Saving and budgeting will also be essential. Living off an income pot that is only going to shrink will require some rigorous planning. If you don't plan ahead, you might find yourself running out of funds in no time at all. A part-time job or freelance gig to cover some living expenses will take the pressure off and let your resources go further.
And if you really can't afford to retire yet, it might be best to delay retirement, which isn't an ideal solution, but if you combine it with some of the tips above, you should be able to clean up your finances and retire more comfortably when the time finally comes.
Time to start saving?
Building a sizeable pension pot is easy if you know how and get started early.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.