The state pension and minimum auto-enrolment workplace pension contributions are unlikely to provide the lifestyle many of us aspire to when stopping work.
However, it is still possible to achieve the desired nest egg without crippling yourself financially during your working career.
Aegon has carried out new analysis which shows that employees in their mid-20s earning £20,000 annually could maintain living standards in retirement by saving less than £50 extra a month into their pensions.
And this figure could also be slashed by tax relief and generous bosses matching these additional worker contributions.
A 25-year-old earning £20,000 a year would need to put away an additional 4.4% of their salary above the 8% total minimum auto-enrolment contribution to retain their lifestyle in retirement - or risk falling more than £50,000 short of required savings.
This 4.4% is equivalent to an initial £40 extra from their monthly take-home pay.
A 25-year-old on £30,000 annually would need to save an initial £136 extra from their monthly take-home pay.
Steven Cameron, pensions director at Aegon, said:
"Maintaining your 'working-age' lifestyle throughout retirement is something many people aspire to, but for most employees saving just the required minimum levels for auto-enrolment won't deliver.
"An employee earning £20,000, for example, should be aiming for a retirement income of around £14,000 per year in today's money terms to maintain living standards.
"The state pension and the fund from paying minimum auto-enrolment contributions into a workplace pension will provide a significant proportion of this, but there will still be a considerable fund shortfall of £54,800 in today's money.
"To plug this gap, they would need to contribute an extra 4.4% of earnings on top of the 5% personal contribution they are currently required to pay under auto-enrolment.
"For someone aged 25 earning a higher salary of £30,000 per year, their gap is much higher and they would need to contribute an extra 8.6%.
"While this may seem daunting, some employers will match any additional employee contributions with an equivalent employer contribution.
"In addition, the Government grants tax relief on employee contributions.
"With matching employer contributions and the boost from tax relief, this means a 25-year-old employee earning £20,000 per year, would need to contribute an initial £20 per month from take-home pay to bridge the gap. Earning £30,000 a year, this would be £68 with matching employer contributions."
Mr Cameron highlighted that the best chance of reaching your retirement goals is to plan ahead and look for ways to save more than the auto-enrolment minimum as early as possible.
He added:
"It can also pay to seek advice to ensure you are on track and have the best investment approach to reach the retirement you aspire to."
Based on tax legislation at the time of publication. Please be aware that there will have been changes since this was published. Speak to your adviser for the most up to date information.
