A “comfortable” retirement, as defined by Pensions UK, includes having enough money to spend on luxuries, such as a two-week four-star European holiday, three domestic long-weekend breaks, a new car every five years and regular meals out.
Fewer than one in 10 of the current working population is on course to enjoy this level of lifestyle.
The £1.2m figure is based on the pension pot lasting until the retiree couple reach 100 years of age – a milestone that one in five people are poised to reach in the next century.
The sum drops to £1m if the cash is required to last until the age of 93, and stands at £942,000 for those funding their retirement until they are 90.
The analysis assumes that the full state pension would kick in at age 67, and is based on 2.5pc annual inflation and investment growth of 5pc after fees.
In the past, workers did not have to worry so much about funding their retirement. Many employers offered “defined benefit”-style pension plans that paid a guaranteed, inflation-linked income for life.
However, today most private sector workers rely on defined contribution schemes where the size of your pot is determined by investment performance.
Most retirees open “drawdown” accounts, which allow a regular or ad-hoc income to be taken from a portfolio that remains invested through retirement. The strength of investment returns combined with the level and timing of withdrawals determines how long the pension will last.
An alternative to drawdown is buying an annuity, which guarantees a fixed income for life.
Calculations by financial services firm Just Group found that the cost of generating a “comfortable” annual income to supplement a full state pension from a joint-life annuity would be a little over £1m. This assumes both retirees are aged 65, in good health and opt for a 50pc survivor pension with no guaranteed period or value protection.
Emma Walker, of Just Group, said: “That figure highlights the challenge people face in building sufficient pension pots and may come as a surprise to many. Starting saving for retirement early and maintaining the saving habit throughout working life is a good way to create the necessary nest egg.”