How to become a retirement millionaire for just £6 a day. Read our definitive guide to the amount you need to save each month to retire in luxury

Retiring with a million pound pension pot and the luxurious lifestyle it offers may sound like the stuff of dreams. But it could be closer than you think.

However, this is unlikely to happen accidentally. Use these top tips – and invest a lot of time – and a retirement of frequent holidays, treating loved ones and enjoying the finer things could just be achievable.

1. Start early

It’s never too late to start saving for retirement, and even putting money aside for a few years can have a tangible impact on your future lifestyle. However, the sooner you start, the less you’ll need to save to reach $1 million in retirement. That’s because the contributions you make to your retirement have longer to grow and benefit from the power of compound interest.

Early contributions are so valuable that someone who starts saving at age 21 and then stops at age 30 can have a larger retirement pot at retirement than someone who starts saving the same amount at age 30 and doesn’t stop. until their retirement.

If you start saving at 20, you’ll need to pay £460 a month for your entire working life to earn £1 million by the time you retire at 65, according to calculations by wealth manager Investec Wealth & Investment. That is the equivalent of €15 per day.

This assumes that you save for a company pension using a salary sacrifice scheme and that your fund benefits from investment growth of 3.8 per cent per year, after fees, and that your contributions increase by 2.6 per cent each year.

Salary sacrifice is a common retirement option offered by employers to make your retirement savings more tax-efficient. You agree to reduce your salary and your employer pays the difference into your pension. This means you benefit from lower national insurance contributions and tax relief.

Wait until you’re in your 30s to start saving and you’ll need to save $775 a month to reach $1 million; in your 40s it rises to £1,400 a month.

Hopefully, by the time you’re 50, you’ll have already thrown away some of your retirement savings. Reaching £1 million from a standing start would be difficult for even the very highest earners. You should set aside €3,450 per month. To reach a million, you would really have to make a lump sum contribution to try to catch up.

Faye Church, accredited senior financial planner at Investec Wealth & Investment, says if you make larger contributions you should ensure they fall within the annual allowance, which limits the amount you can add to your pension each year and claim tax. taking advantage. an exemption of £60,000 per year (previously £40,000 until this tax year).

She adds: ‘People in their 60s would struggle to reach a £1 million pension by the time they turn 65 if they have no other provision, because of the annual allowance and the short timeframe.’ If you haven’t used your annual allowance in the last three years, you can make a one-off contribution worth four years – a total of £180,000. You would then have another four years to make £60,000 contributions, which would give you £420,000 at age 65.

2. Collect free money

The above figures for how much you need to put aside each month to earn €1 million include tax relief and contributions from your employer. This means that – once you deduct these benefits – the amount you personally need to save each month can be significantly less.

Take someone in their 20s who is a basic taxpayer and has an employer that matches their pension contributions. To put aside £460 a month, they would only need to put in £184. That’s just over €6 per day. Their employer would put in half – £230 – and the government would increase their contribution by 20 per cent thanks to tax relief on pensions. With a salary sacrifice they would have to pay £152.

Similarly, someone in their 30s, who is a higher rate taxpayer and whose pension contributions are matched by their employer, would only have to pay £254.50 a month to have £775 added to their pension, using a salary sacrifice.

3. Ride the waves

These figures – and most pension forecasts – assume that you will continue to work throughout your working life and that your income will rise steadily over that period. That may turn out to be the case, but there’s a very good chance that your working life will be much bumpier, with time off for caring responsibilities, health, retraining or redundancy, along with other periods of higher earning power or even the occasional windfall.

The key is to ride the waves. When you work for an employer with a generous pension scheme, you can increase your premiums if possible. If you receive a cash amount, such as an inheritance, bonus or severance payment, you can pay part of it into your pension. That way, you’re more likely to stay on track to make $1 million, even if there are times when you can’t pay as much as you’d like.

And what would you get for £1 million?

A pension pot of £1 million could give you an after-tax income of £40,375 if you are a basic rate taxpayer, and £33,250 if you are a higher rate taxpayer. You would continue to do that until the age of 95, according to the calculations of Investec Wealth & Investment. This assumes that your remaining pot grows by 3.8 percent annually, after deduction of costs, and that you receive the full state pension.

The income is just below the level that, according to pension sector standards, a single person needs for a comfortable retirement. According to the Pensions and Lifetime Savings Association, a single person needs £43,100 for a comfortable retirement. This would give you a two-week four-star holiday in Europe every year, three long weekends in Britain, £70 a week for food and a new car every five years.

I retired at the age of 55 thanks to my £1 million savings pot

‘I love every second of it’: Ian Dunsire

Ian Dunsire, 74, retired almost 20 years ago at the age of 55 and says he has ‘loved every second’. He volunteers as a signalman on the Ffestiniog Railway near his home in Wales, as a trustee for his local conservation charity, has a small holding company – and is looking forward to celebrating his birthday in June with his wife Barbara, on a cruise in Alaska.

And Ian says it’s all thanks to his £1million Self Invested Personal Pension (Sipp). “I started saving in the early 1990s and put away £10,000 a year for most of my working life,” he says. ‘There were times when that was more difficult and it meant giving up things like a holiday or a more luxurious car. But I knew it would help us one day.”

Ian had worked a demanding consultancy job that required extensive travel. Barbara owned an accounting business. While they enjoyed the work, they were excited to give it up at the same time to do other things they love.

Ian now withdraws £2,500 every month from his pension, which he holds on investment platform AJ Bell, but says its value is still rising thanks to investment returns. He maintains a balanced portfolio, covering a range of sectors and regions, so that he does not experience too much volatility. Ian’s advice? ‘Go for it! Start as early as possible and then keep saving every month. Also put any other money you get in it. If I got a bonus, I immediately put it into my pension. It’s worth it.

‘I’ve seen friends stop working at retirement age and stop enjoying it because they get sick or are tired. I’m so happy that my Sipp allowed me to retire early.’