How Much Should a Self-Employed Person Save for Retirement

The Retirement Savings Question

How much do you need to save for retirement? It is the question every self-employed person asks — and the answer depends on the life you want to lead when you stop working, when you plan to retire, and what other income sources you will have.

There is no universal magic number, but there are practical frameworks that help you arrive at your own target. And the most important thing is not getting the perfect number — it is starting.

What Does Retirement Cost?

The Pensions and Lifetime Savings Association (PLSA) publishes retirement living standards that give useful benchmarks for the UK:

| Standard | Single Person (Annual) | Couple (Annual) | |----------|----------------------|-----------------| | Minimum | £14,400 | £22,400 | | Moderate | £31,300 | £43,100 | | Comfortable | £43,100 | £59,000 |

The minimum standard covers basic needs — housing, food, and utilities. The moderate standard adds holidays in Europe, more leisure activities, and a better car. The comfortable standard includes long-haul holidays, a newer car, and more financial freedom.

These figures assume you own your home outright. If you are still paying rent or a mortgage in retirement, you will need more.

The State Pension Baseline

The full new State Pension for 2025/26 is £11,502 per year (£221.20 per week). If you have a full 35 qualifying years of National Insurance, this forms your baseline retirement income.

For a single person targeting a moderate retirement (£31,300), the gap between the State Pension and the target is approximately £19,800 per year. Your private pension and other savings need to fill this gap.

How Large a Pension Pot Do You Need?

A common rule of thumb is the "25 times" rule: multiply your desired annual pension income by 25 to estimate the pot size needed. This is based on drawing down approximately 4% per year.

Examples

| Annual Income Needed (above State Pension) | Pot Size Needed | |-------------------------------------------|-----------------| | £10,000 | £250,000 | | £15,000 | £375,000 | | £20,000 | £500,000 | | £30,000 | £750,000 |

These are rough guides. The actual amount depends on investment returns during drawdown, inflation, how long you live, and whether you use an annuity or drawdown.

How Much to Save Each Month

The amount you need to save monthly depends on:

• Your target pot size
• How many years until retirement
• Expected investment returns

Assuming 5% annual growth (after inflation and fees):

Starting at Age 25 (42 years to age 67)

| Monthly Contribution | Approximate Pot at 67 | |---------------------|----------------------| | £100 | £152,000 | | £200 | £304,000 | | £300 | £456,000 | | £500 | £760,000 |

Starting at Age 35 (32 years to age 67)

| Monthly Contribution | Approximate Pot at 67 | |---------------------|----------------------| | £100 | £89,000 | | £200 | £178,000 | | £300 | £267,000 | | £500 | £445,000 |

Starting at Age 45 (22 years to age 67)

| Monthly Contribution | Approximate Pot at 67 | |---------------------|----------------------| | £200 | £98,000 | | £300 | £147,000 | | £500 | £245,000 | | £1,000 | £490,000 |

The message is clear: starting earlier requires smaller contributions to reach the same target. Every year of delay costs you.

The Self-Employed Challenge

Employed people typically have an employer contributing 3-5% (or more) of their salary to a pension. Self-employed people have nothing. To match what an employed person receives, you need to contribute the equivalent of both the employee and employer contributions.

If an employed person contributes 5% and their employer contributes 5%, the total is 10% of salary. As a self-employed person, you would need to contribute the full 10% yourself.

The Half-Your-Age Rule

A popular guideline: take the age you start saving and halve it. That percentage of your income should go into your pension.

• Start at 20: save 10%
• Start at 30: save 15%
• Start at 40: save 20%
• Start at 50: save 25%

These are aggressive targets, but they reflect reality. Starting later means you need to save a higher proportion of your income.

Practical Strategies for Self-Employed Savers

1. Start with What You Can Afford

If you cannot commit to large contributions right away, start small. Even £50 per month is better than nothing. You can increase contributions as your income grows.

2. Automate Your Contributions

Set up a direct debit on the day your biggest clients typically pay you. Treat pension contributions like a non-negotiable expense.

3. Use Year-End Windfalls

After a profitable year, make a lump sum pension contribution before the tax year ends. This reduces your tax bill and boosts your pension pot.

4. Take Advantage of Tax Relief

Remember that pension contributions effectively cost you less than the headline amount:

• A £1,000 contribution only costs you £800 if you are a basic rate taxpayer (£600 if higher rate)
• Tax relief is free money from the government — use it

5. Use Carry Forward

If you had a lean year and could not contribute much, carry forward unused annual allowance from the previous three years. In a good year, make a larger contribution to catch up.

6. Review Annually

Income fluctuates when you are self-employed. Review your pension contributions every year as part of your year-end financial review. Adjust up or down based on your circumstances.

Do Not Forget Other Savings

A pension is essential, but it should not be your only savings vehicle:

• Emergency fund — 3-6 months of expenses in an easily accessible savings account
• ISA — for medium-term saving with tax-free growth and no access restrictions
• Business reserves — cash set aside for tax payments and quiet periods

A good financial plan balances retirement saving with other financial goals and the unique cash flow needs of self-employment.

How Accounted Helps

Accounted gives you the financial visibility to make informed pension decisions:

• Profit tracking — know your income throughout the year, not just at year end
• Tax forecasting — understand your tax position and how contributions would affect it
• Expense management — maximise your allowable expenses to free up more income for saving
• Self Assessment readiness — claim pension tax relief correctly

Check our pricing plans and take the first step towards financial clarity.

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The best time to start saving was yesterday. The second best time is today. Sign up for Accounted and let Penny help you understand your income so you can plan for the retirement you deserve.