If you are worried about how much money you will need to live comfortably in old age, you are not alone. Several surveys suggest that at least two-thirds of people are worried about financial security in retirement.
And even though here in the UK we are lucky enough to have a State Pension as a backstop, the reality is, in most situations this financial cushion is not enough.
A recent survey conducted by consumer reviews magazine Which found that the average retiree requires just over £2,000 a month in income to live comfortably. According to my figures, this suggests a weekly income of at least £461 is required. Unfortunately, the full new State Pension is only £164.35 a week, 64% less than what most retirees need, according to the Which survey.
Time to take action
These numbers might seem daunting, but they need not be. In practice, it is very easy to save for a comfortable retirement. You can start with just a few pounds a day, £3.50 for example, roughly the price of a large Vanilla Spice Latte from your local Starbucks.
It might not seem like much, but throughout the course of a year, this simple contribution will grow into a pot worth £1,277.50. When invested in a stock index such as the FTSE 250, this affordable daily contribution could grow into a bigger nest egg.
Indeed, over the past 20 years, the FTSE 250 has produced a double-digit total annual return for investors. Assuming you are investing £3.50 a week, or £106.50 per month (on average) and compounding takes place on a yearly basis, your nest egg could grow to be worth £365,000 over 35 years.
How much do you need
According to my figures, if you want to double your State Pension in retirement, a total pension pot of £213,615 is required by the time you decide to quit the rat race. So, by putting aside £3.50 a day, I believe that you should be able to double your income comfortably.
In fact, I estimate that a pot of £365,000 would be enough to give you an annual income of £14,000 a year excluding the State Pension. Including the income from the government, you could achieve a yearly salary in retirement of £22,500 by putting aside just £3.50 a day.
Too good to be true?
You might think these figures look too good to be true. But they’re not. Saving for retirement is relatively simple. Where most people struggle is putting together a plan and sticking to it.
The key is to set a savings goal that is achievable, and I think the £3.50 a day target is just that. For a total of less than £25 per week, you can start saving for the future today, and it shouldn’t cost you any more than the price of an admittedly expensive cup of coffee from a high-street coffee chain. So stop stalling and start saving for the future today.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Starbucks. 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.