However, the figure often quoted to buy this income is a pension pot of £1m at retirement, which can seem daunting to an investor who assumes they need to put aside hundreds of pounds a month over a period of several decades.
But does investing for this sort of pension goal really have to be detrimental to your lifestyle? If you are an employee with access to a workplace pension scheme, you may only need to make quite modest monthly savings.
Paul Claireaux a former wealth management adviser who is writing a book on investment has produced figures to show that just £165 a month might be enough to fund a £30,000 pension for an employee who is investing over 30 years from age 35 to 65. If you are happy to go without any tax-free cash then your personal net outgoings could be as low as £125 a month.
Here's how he worked it out.
He estimates that the gross monthly payment to a pension from age 35 to 65 (increased each year with inflation) to deliver an annual lifetime income of £30,000 is £550 for a level pension, or £1,100 for an inflation-linked pension.
He assumes that the level pension is the preferred option. "The starting incomes on pensions linked to retail prices index inflation are so much lower that, unless inflation is raging, it will take so many years to catch up with the level pension that most of us will be dead," he says.
He then keeps the costs down by taking account of a state pension - estimated at £7,500 a year (the proposed single tier amount) starting from around age 67 or a bit later.
The personal cost would be reduced further by any employer contributions to the pension. A good defined-contribution workplace pension in which the employer matches employee pension contributions would reduce the lower number by half.
However, there are normally limits to the amount an employer will put in so don't assume a full percentage match from your employer on any amount you put in. Check the limits.
The personal cost is then reduced again by personal tax relief on input. So for a 40 per cent taxpayer this would currently take 40 per cent off the personal cost. And a bit more NI saving might be possible if you run your own limited company and pay the money in as a company contribution.
With his estimate there is a small gap between age 65 and the state retirement age of 67 but this would be more than filled by the estimated tax-free cash lump sum from the level pension of £88,000.
If you were happy to go without any tax-free cash then your monthly personal net outgoing would be just £125.
