Salary sense: How much do I need to save?

The sooner you start to put money aside, the more time it has to grow. How much you need to save depends on how much income you will want or need when you retire.

As a rule of thumb, most advisors recommend that you should be aiming to build up a pension worth around two thirds of your final salary. If you're on track for anything below 50 per cent of your salary, this could spell trouble.

Inflation, even at modest levels, will make a very big difference over a long period. For example, if you are earning £30,000 now, and you expect this to grow at five per cent each year for the next 30 years, your salary in 2034 will be £136,141! Your pension fund will need to be big enough to provide a similar income.

Obviously, the longer you delay starting a pension plan, the more you need to pay in to receive the same amount of benefit when you retire. The longer the invested money sits in a fund the more its value grows exponentially.

For example, to retire when you're 60 on an income of £10,000 pa (escalating at five per cent per year to accommodate for inflation), the amount you need to pay each month will vary greatly, depending on when you begin contributing.

This table shows the difference in both the monthly and total contributions needed, depending on what age you are when the pension plan starts.

As you can see, it costs twice as much to secure the same value pension fund if you start at age 50 rather than at 30. The amount you are allowed to pay into your pension will be dependent on your current earnings.

Calculators:
The Merrill Lynch website includes some very helpful online calculators to help you identify:

• How much you are likely to earn when you stop working
• How much you will need to save to provide the level of pension you need

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