Generation Z will need at least £3m in pensions to retire comfortably, according to analysis by wealth manager Rathbones Group, as inflation will increase costs exponentially over their lifetimes.
Using the Pensions and Lifetime Savings Association’s (PLSA) figures for a ‘comfortable’ retirement – and adjusting for inflation – the average person in their 20s will need £3.1m.
This implies a 2% increase in the consumer prices index (CPI) for the next 65 years, which spans 40 years until retirement and 25 years post-working life, taking a 20-year-old individual to 90 years old.
Couples are slightly better off, with a total savings requirement of £4.3m between two people. This compares to the £1.4m needed by someone retiring now at age 65, and £1.9m for couples.
A ‘moderate’ lifestyle would require £2.2m for a single person (£3.1m for a two-person household), while a ‘minimum’ lifestyle would require a pot of £947,700 (£1.5m for a couple).
The challenges ahead for younger people aiming to retire have been “amplified” by the current economic landscape, where housing costs, student debt, and broader cost-of-living pressures hinder saving efforts, the firm noted.
Rebecca Williams, divisional lead of financial planning at Rathbones, said: “The figure is shocking and serves as a stark reminder of how inflation can quietly erode retirement savings. What’s considered an adequate retirement nest egg today may barely scratch the surface of what Gen Z will need when they retire.
“While a comfortable retirement means different things to different people, younger generations face higher hurdles – from high housing costs to student debt – while also needing to ensure their savings stretch further to account for greater longevity.”
The ‘comfortable’ retirement alluded to comes from the PLSA. It assumes £130 a week on food and £80 for lunches, meals out and coffees, £30 per week on takeaways and £100 per month on taking others for meals out.
Yearly, retirees get £1,500 to spend on clothes, 12 gifts worth £50 per year to spend on others (and another 12 over the Christmas period), and £1,000 to support family members, as well as a fortnight in a 4* hotel in the Mediterranean and three UK breaks over long weekends.
It also assumes £600 per year to maintain property (with a £300 contingency), a three-year-old car replaced every five years and smaller spending on taxis and rail fares, television subscriptions and broadband.
How to save £3.1m over the next 40 years
Generation Z, which includes people born from the mid-to-late 1990s to the early 2010s (typically between 1997 and 2012), still has 40 years or so until retirement, so plenty of time to amass a retirement pot of £3.1 million.
A 25-year-old would need to save approximately £1,600 per month, or £19,200 per year, assuming this increases 2% annually (through pay rises) and grows at 5% per year.
“Starting early and saving consistently is key; even modest, regular contributions can grow substantially over time. With a longer investment horizon, younger savers can typically afford to take on more risk, potentially boosting returns,” said Williams.
“Regular pension top-ups benefit from compound growth and tax relief, while maximising workplace pension contributions – especially employer matches – is essentially free money.”
The ‘Bank of Mum and Dad’ is also an option, said Williams, although one area likely to be less fruitful in the future is final salary schemes, which are “fading into history”.
As such, the “responsibility for retirement savings” is increasingly falling on individuals, who need to be careful as often the minimum contributions “fall short” of this goal – especially for those in irregular or gig economy roles, where pension gaps are common.
While the savings required each month is a lot of money, it is still significantly more achievable than leaving money languishing in cash. Even more so, said Williams, when tax relief and employer contributions are added to the mix.
For example, Rathbones calculated that someone relying on cash savings with 2% annual interest would need to save nearly £3,000 per month (or £35,800 per year) –almost double the amount required under the pension scenario.
It should be noted, however, that this analysis excludes State Pension entitlements, which could supplement retirement income.