Many of us save into a pension every month without ever truly working out how much we would need to set aside to enjoy retirement.
We funnel money away during the course of our lives, paying it into a string of work pensions. But there is a tipping point at each age, a point at which you have saved enough to guarantee yourself a prosperous time in later life.
Beyond this, you could safely stop saving into a pension and redirect your spare cash elsewhere. This is because your pension will be invested in the stock market, where it will continue to grow each year.
Small amounts invested early on in the stock market can compound into significant sums over the long term. Those able to invest a lump sum could fare even better with far less effort – and it doesn’t have to be a particularly large amount if you invest it early enough.
We asked experts to crunch the numbers so you can see how much you would need to have in your pension for each decade, from your 20s until your 60s, if you want to stop saving today and still reach a £1 million pension pot by age 65. We have also asked financial professionals what you can do if you are falling behind.
Invest like it’s child’s play
Starting young is the best way to grow your wealth with minimal input. But this will require parents and grandparents to do the initial work. An investment of £6,721 made when a child is born could reach £1 million by their 65th birthday, calculations by Fidelity International show.
This assumes the money grows by 8 per cent a year after fees.
If that sounds like an ambitious level of return, it’s in line with the performance of the MSCI World, a global stock market index, over the past 20 years.
You can put up to £9,000 a year into a Junior Isa (Jisa) for a child from when they are born until age 18
However, it’s important to note there are no guarantees when it comes to investing and your money could fall in market downturns.
Furthermore, you will need to bear in mind the impact of inflation. This is the case at every age, but particularly for those who are decades away from retirement. While £1 million is a substantial sum at the moment, it will be worth less than this when you reach retirement age. For a good retirement, you are likely to have to target a higher sum than this.
You can put up to £9,000 a year into a Junior Isa (Jisa) for a child from when they are born until age 18. You can also open a pension – known as a self-invested personal pension (Sipp) – for anyone.
There is no minimum age, but if it is for someone under 18 then it is called a Junior Sipp.
Children benefit from the same tax relief as adults. You can make pension contributions of up to £2,880 a year, on which you will get a basic-rate tax refund, meaning the Government adds 20 per cent to what you pay in. If you pay the full £2,880 into the account, your money will be instantly topped up to £3,600 thanks to tax relief.
Parents who make just one large deposit from birth could make a very big difference and turn their child into a future millionaire. This is because young people are able to take advantage of the ultimate tool in any investor’s kit: time.
The longer you leave your money to grow, the more it can benefit from compound interest.
This is the phenomenon where you earn interest on profits you have already made, which means your gains accelerate each year even if you don’t add any more money to the pot.
Rob Morgan, chief investment analyst at Charles Stanley, says: ‘Putting money to work at the earliest opportunity tends to become increasingly powerful as time goes on. As the saying goes, “The best time to plant a tree was 20 years ago, the second-best time is today.” ’
Using a lump sum early
Those starting later can still make use of this strategy but will need a larger initial investment to get them started. An 18-year-old would need to invest £26,859 to reach £1 million by age 65, Fidelity found. Someone starting at 25 would need to have £46,031 invested.
An 18-year-old would need to invest £26,859 to reach £1 million by age 65, Fidelity found
A common argument against investing a lump sum is the risk that the stock market could fall the next day, immediately slashing the value of your pot. But even if this happens, leaving your money invested means it can benefit from the market rebound. As the experts say: it’s not timing the market, but time in the market.
Research by investment group Vanguard uses the example of ‘Unlucky Jim’, who invested a £45,000 lump sum in September 1997, on the eve of the Asian financial crisis, which caused global stock markets to plunge.
If Unlucky Jim left his money invested, he would have endured at least six subsequent crashes since then, including the dotcom bubble burst in 2000, the global financial crisis in 2008, and the Covid pandemic of 2020.
Despite that, by May 2026, his initial £45,000 investment would have grown 977 per cent to an incredible £439,822.
Jason Hollands, from investment firm Bestinvest, says: ‘Lump sum investing may not always work out in the short term, but the power of compound growth means the earlier your money is invested the more chance it has to grow over time.’
Those able to avoid panicking when the market falls and who leave their money invested will benefit when the market recovers.
Hollands points out that, for the most part, stock markets tend to rise in more years than they fall.
The MSCI All Country World Index, which tracks the share price of markets around the world, has produced positive returns in 29 out of 38 years since it was launched, for example.
Those able to avoid panicking when the market falls and who leave their money invested will benefit when the market recovers
Hollands says: ‘So 76 per cent of the time, putting your money in the market up front with a lump sum would have been the right call compared to drip-feeding it gradually over the years.’
Meanwhile, the S&P 500 in the US has risen in 40 out of the 50 years since it was launched – that’s 80 per cent of the time.
Hollands adds: ‘The case for investing regularly is that it can help smooth out some of the ups and downs in the stock market. But the counter to that – putting your cash to work with a lump sum – is that in most years stock markets rise, so the sooner your money is invested, the more you benefit from compound interest.’
In your 30s and 40s
Those who leave the bulk of their retirement saving until later will need a larger sum in their pension to be able to reach that £1 million mark by 65.
A 30-year-old would need to have £67,635 in their pot to hit this target, analysis by Fidelity found, and a 40-year-old would need £146,018.
Hollands says money from a workplace bonus, a windfall such as an inheritance, or proceeds from a house sale could help to fund the pot.
‘You might even have left funding your annual Isa allowance until the end of the tax year and want to get it done and dusted,’ he says.
But investing significant amounts in one go comes with practical considerations. An individual can put up to £20,000 a year into an Isa, and all gains are tax-free, so this is a first port of call for investors.
Those investing larger sums are likely to need to make use of a general investment account
Beyond this, it can make sense to use up your annual pension allowance, particularly if your goal is saving for retirement. This is because you will receive tax relief at your marginal rate on any contributions you make.
Basic-rate taxpayers get 20 per cent tax relief on their payments, which means you need to put in only £80 to reach £100. Higher and additional-rate taxpayers get tax relief at 40 per cent and 45 per cent.
It is possible to put up to £60,000 or 100 per cent of your earnings (whichever is lower) into a pension each year. Under current rules, the money can be accessed from age 55, although that is rising to 57 from 2028.
However, one useful perk of the annual allowance is that you can still benefit from any unused allowance over the three previous tax years, under certain conditions. You need to use up the current year’s allowance first and have set up a pension to qualify.
Those investing larger sums are likely to need to make use of a general investment account. The benefits of these are that they offer flexibility over when you access your cash and have no limit on how much you can add each year. On the down side, profits could be subject to capital gains tax (CGT).
Currently, individuals have an annual CGT allowance of £3,000. Basic rate taxpayers pay 18 per cent on gains beyond this, and higher and additional rate payers 24 per cent. However, Chancellor John Healey is said to be considering a hike on these figures.
It is possible to mitigate a tax bill by drawing down profits gradually, ensuring that you don’t withdraw more than your annual allowance each year.
In your 50s and 60s
The older you are, the harder it will be to reach that £1 million goal. According to Fidelity International, a 50-year-old would need to have £315,242 invested in their pot to reach seven figures by the age of 65.
The sums required at this stage get significantly larger because the money has less time to grow and compound. With only five years for their money to grow, a 60-year-old would need a hefty £680,583.
Needs in retirement
While there is a certain allure to becoming a millionaire, you may not actually need to build a pot this large. For those who are investing for retirement, it is important to do some sums to work out how much you really need to aim for.
Guidelines from trade body Pensions UK and used widely by the pensions industry suggest an individual needs an annual income of £32,700 after tax for a moderate lifestyle in retirement.
This includes enough for £59 a week on groceries, an annual all-inclusive two-week holiday overseas, and £1,500 a year to spend on clothes.
Assuming they get the full state pension, currently about £12,600 a year, an individual would need to provide an extra £25,000 a year in income from their own savings.
Standard Life estimates that, at current rates, a savings pot of £431,000 will be enough to secure an inflation-linked annuity that would pay enough income for this.
For a comfortable lifestyle in retirement, Pensions UK estimates that an individual would need an annual income of about £45,400, or about £32,800 after state pension.
This is enough for £78 a week for groceries plus extra for takeaways and meals out, a four-star holiday abroad each year plus three long weekends in the UK, and £1,500 for clothes and shoes.
It would require a pot of about £719,000 to buy this level of income in the form of an annuity, according to Standard Life.
A lump-sum investment of just £2,420 made at birth could grow to £431,173 by age 65, enough to cover a moderate lifestyle, assuming annual investment growth of 8 per cent after fees.
A £4,036 lump-sum investment could reach £719,097, providing enough for a comfortable lifestyle retirement.
Morgan says: ‘By carefully considering where you want to get to and then working backwards, you’ll have a realistic plan to work towards.
‘The sums required to meet your goal may look intimidating, but it really does underline that time is an investor’s greatest ally as it allows compounding to work its magic.’
What if you fall short?
If you don’t hit these targets, you are far from alone.
About 15 million people are not saving adequately for retirement, according to a warning from the Pensions Commission. The good news is there are a number of ways you can boost your workplace pension.
If there are times when you can afford to ramp up your contributions, or even put a lump sum in your pension, that can help keep you on track. Bear this in mind if you get a redundancy payout or an inheritance.
The rules of pension auto-enrolment state that employees must put a minimum of 5 per cent into their workplace pension and employers 3 per cent.
But some employers will match your contributions if you put in more. Ask yours what it offers.
If you have never checked where your workplace pension is invested, the chances are it has been put into a default fund. Check your latest annual pension statement or ask your provider for details of your investments.
Some schemes move you to lower-risk investments as you approach retirement – this is to reduce the chance that your pot suffers a stock market shock before you stop working.
However, if you plan to continue working further into your 60s, or if you don’t plan to spend most of your pension for many years, the chances are you can afford to take more risk – and, hopefully, benefit from higher investment returns.
Do you have a £1million pension pot? Tell us how you did it. Email: moneymail@dailymail.co.uk