Generation Z are likely to need at least £3 million to retire comfortably due to the erosive effect of inflation, according to new analysis by Rathbones Group.
Calculations based on the Pensions and Lifetime Savings Association’s ‘comfortable retirement’ standard suggest a 25 year-old today would need a pension pot of £3.1 million to retire at age 65 and live comfortably over a 25-year retirement. In today’s terms, this equates to over £1.4 million.
The wealth manager said its calculations factor in 65 years of inflation uprating 2% per year, highlighting how inflation erodes the value of money over time.
For a two-person household, where both individuals are aged 25, this figure rises to £4.3 million, or £1.9 million in today’s terms.
Rathbones said the challenge of saving for retirement for younger generations has been amplified by the current economic landscape, with high housing costs, student debt and cost of living pressures hindering saving efforts.
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.”
Rathbones said to build a retirement pot of £3.1 million by age 65, a 25-year old would need to save around £1,600 per month in a pension, assuming contributions increase by 2% annually and the pot grows at 5% per year.
In contrast, someone relying on cash savings with 2% annual interest would need to save nearly £3,000 per month – almost double the amount required under the pension scenario, with the latter benefitting from tax relief and employer support.
Williams added: “With final salary schemes fading into history, the responsibility for retirement savings increasingly falls on individuals. Auto-enrolment has helped lay the groundwork, but minimum contributions often fall short – especially for those in irregular or gig economy roles, where pension gaps are common. Frequent job changes can also leave savers with scattered, forgotten pots.
“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. Regular pension top-ups benefit from compound growth and tax relief, while maximising workplace pension contributions – especially employer matches – is essentially free money.”
Williams added that there is also a trend of “Bank of Mum and Dad” helping out, from junior SIPPs to gifts for adult children.
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