Savers in their 40s will need a £74k income for a comfortable retirement

People in their 30s and 40s looking at present-day forecasts for a ‘comfortable’ retirement income need to factor in inflation and aim their sights far higher, warn money experts.

A single person needs to target £74,000 a year for a comfortable retirement in 20 years’ time, rather than the £45,400 industry estimate published this week.

And a couple will need nearly £103,000 rather than the current £62,700 a year, warns financial advice platform Unbiased.

The present industry forecasts anticipate people will qualify for a full state pension, and do not include income tax and housing costs if you still rent or have a mortgage.

Meanwhile, the much higher future figures were worked out based on a steady and modest 2.5 per cent inflation rate between now and 2046, according to Unbiased

Inflation is a ‘massive blind spot’ for people in midlife working out how much they need to save for old age, it explains.

Due to the way inflation compounds year after year, every £1 you spend today will cost £1.64 by the year 2046, the group points out.

Unbiased has also revised up present-day Pensions UK figures for a basic and moderate retirement by accounting for inflation over the next 20 years – find a full rundown below.

The Pensions Commission, set up by the Government to try to stop future retirees ending up poorer than older people today, recently said that 15million people are under-saving for retirement and this could rise to 19million unless action is taken.

Some 45 per cent of working-age adults, or around 18 million people, are not saving into a pension at all, despite nearly half of them being in work, it says.

How much more will retirement cost in 2046?

The present Pensions UK figures and what your income target might look like if you retire 20 years from now are below. Unbiased multiplied today’s living standard numbers by 1.64.

It is expected that you will qualify for a full state pension, currently around £12,500 a year – so individuals need to save harder, because if you’re in a couple you can expect to live on two during some chunk of retirement

Comfortable, single: Now £45,400, 2046 £74,394

Comfortable, couple: Now £62,700, 2046 £102,741

Moderate, single: Now £32,700, 2046 £53,583

Moderate, couple: Now £45,400, 2046 £74,394

Minimum, single: Now, £13,900, 2046 £22,777

Minimum, couple: Now £22,500, 2046 £36,869

When it comes to what size of private pension fund you will need to save up, Evelyn Partners has done some calculations based on the present-day Pensions UK estimates.

It estimates an individual will need a pot worth £44,874 to hit the basic retirement income target at age 65, £335,217 to achieve the moderate level and £532,020 for the comfortable lifestyle.

Inflation compounds year after year

Tim Grimsditch, managing director of Unbiased, says: ‘People look at a 2 per cent or 3 per cent inflation rate and assume it sounds manageable.

‘What they often miss is the cumulative impact this has over the course of a career. It steadily erodes purchasing power, meaning the retirement target you are aiming for today will look very different by the time you stop working.

‘Trying to fund your future based purely on current figures is an easy trap to fall into. Because the true cost of retirement is a moving target, relying on guesswork puts your lifestyle at risk.

‘Taking professional financial advice early on is a practical way to build an adaptable plan that protects your lifestyle, helping to ensure you can achieve the standard of living you expect in retirement.’

How to boost your retirement income

Unbiased gives the following advice – see also This is Money’s guide below.

1. Maximise your peak earning years: ONS data shows that UK salaries peak between the ages of 40 and 49.

Instead of increasing your lifestyle spending as your salary rises, redirect a portion of any pay rises or bonuses directly into your pension to supercharge your compound growth.

2. Don’t ignore free employer cash: If your employer offers a matching contribution scheme (where they match any extra percentage you put in), maximise it.

It is effectively free money that immediately boosts your pot’s defenses against inflation.

3. Review your investment risk profile: Leaving your retirement savings entirely in cash means inflation will diminish their value.

Ensure your pension funds are invested in an appropriate mix of assets that have the historical potential to beat inflation over the long term.

4. Track down lost pensions: Throughout your working life you will have no doubt switched jobs multiple times, often leaving small, forgotten pension pots behind.

Consolidating old pots into one pot can reduce admin costs and maximise your return come retirement.

5. Do a mid-career reality check: Don’t wait until your 60s to find out you have a shortfall.

If the numbers show a gap, speaking to an independent financial adviser in your 30s or 40s allows you to fix it before it is too late.

What if your pension is falling short

If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement. 

Non-public sector employers have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die. 

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers. 

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.

You should add the forecast figures to what you anticipate getting in state pension, which is currently £241.30 a week or nearly £12,550 a year if you qualify for the full new rate. Get a state pension forecast here.

Consider whether you can afford to pay more into your pension, especially if your employer matches higher contributions, or if you receive bonuses and pay rises.

If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

 If you have lost track of old pots, the Government’s free pension tracing service is here. 

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.