The 3 buckets savings formula

We’ve got some tips to help you keep your finances on track. Try our three-bucket formula for success to keep you living your best life.

 
A young parent on a slide with her daughter.

Savings made easy

  • Short-term goal.
  • Mid/long-term goal.
  • Long-term goal.

​We see short-term as less than 5 years, mid/long-term as 5 to 10 years and long-term as 10 years plus. 

​You can take control, and we can help.

Oh hello good times. The future wants a word

Your 30s and 40s can feel like a financial juggling act. Whether you’re paying off your mortgage or student loan, growing your family, or looking to save and invest for future financial security. We’ve got some tips to help you keep your finances on track. Try our three-bucket formula for success to keep you living your best life.

Rainy-day fund - Bucket 1

Bucket one of your three-bucket plan should be to get an emergency savings pot into action.​​

The boiler needs replacing. The car engine dies. Or you get made redundant. How much do you really have set aside for your financial rainy days? ​

Our quick calculator can help you work out what your emergency pot should be for your unique situation. And our goals tool in the app can help you save and track this.

Better your life with Bucket 2

Number two (your medium to long-term bucket) is for saving and investing or both for five years or more. Maybe for the kids' school or uni fees. Or if you need to move to a bigger home. ​​

You might be weighing up your options as to whether to save or invest. Our Save and Invest calculator in the app to see how a little bit of saving or investing could go a long way.​​

History has shown that over the long-term, investing in the stock market is likely to deliver higher returns than a cash savings account – although of course nothing is ever guaranteed. Once you have your rainy-day fund, every-day and known-spending savings in place, you could look to invest with the excess funds you have.​

Investment's 10-year track record:
 

This graph shows a comparison of savings and investments over 10 years.

If you’d invested £1,000 in a fund tracking the S&P World Index (it tracks medium to large companies across 24 developed markets) in 2015, it would have been worth £2,659 in January 2025. Whereas £1,000 kept in a typical savings account would be worth £1,229 in January 2025.

Source:
(Savings) MoneyFacts, 12m Fixed Non-ISA rates, January 2025.

(Investments) S&P Dow Jones Indices, S&P World Index (GBP). Excludes fees. Past performance is not a reliable indicator of future performance. You can see a breakdown of these figures here.

Past performance is not a reliable indicator of future performance. Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. If you’re not sure about investing, seek financial advice. There will normally be a charge for that advice.

To find out more, why not take a look at our ‘What is investing?’ tool in the app?​

For investing, a good rule is not to stick all your eggs in one basket. So don’t just invest in one company – a diversified portfolio could reduce risk. One starting point could be to open an Individual Savings Account (ISA) online. You can invest up to £20,000 this tax year and any potential profit is protected from capital gains tax or UK income tax.​​

Tax treatment depends on individual circumstances and may be subject to change in the future.​

Long-term goal: Free yourself with Bucket 3

Time for bucket three. Your longest term pot - investing for retirement. Feels far off, doesn’t it? But to avoid your pension going pear-shaped, it's a good idea to get on it ASAP. ​​

We’ve had a look at what you need in a retirement fund - based on calculations by the Centre for Research in social policy at Loughborough University on behalf of the Pensions and Lifetime Savings Association. At a minimum, a single person living outside London will need £14,400 a year for the basics, with a bit left over for fun. Want more lifestyle options? That’s £31,300 a year.​

And for a comfortable retirement with some luxuries thrown in aim for £43,100 a year. (You’ll need a bit less than double this for couples, and more if you in London). ​​

To secure bucket three, take full advantage of your workplace pension if you have one. If your employer matches every penny you put in, max your contributions to that level. Pay rise? Put the extra into bucket three.​

How to achieve the retirement you want, if you started pension contributions now

Table of required contributions to meet projected annual pensions

Age

25

30

35

40

45

50

Age

Monthly pension contributions required for minimum £14,400 a year in retirement

25

£110

30

£135

35

£165

40

£205

45

£265

50

£360

Age

Monthly pension contributions required for minimum £31,300 a year in retirement

25

£750

30

£900

35

£1,115

40

£1,405

45

£1,805

50

£2,450

Age

Monthly pension contributions required for minimum £43,400 a year in retirement

25

£1,200

30

£1,450

35

£1,800

40

£2,225

45

£2,880

50

£3,915

Please note the figures included in the table are approximate.​

Assumes retirement age of 67, growth rate of 5%, inflation rate of 2% in line with current FCA guidance, taking 25% tax-free lump sum and a full State Pension of £11,502 a year included. Source: www.lloydsbank.com/pensions/pension-calculator.html ​ ​

The retirement benefits you receive from your pension plan will depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed, and can go down as well as up. The value of your plan could fall below the amount(s) paid in.​​

Our pension calculator is only a guide and based on a number of assumptions below. It assumes you are taking a guaranteed income for life, also known as an annuity.

Our pension calculator shows what a big difference even small changes can make.

  • State Pension

    We've assumed you could receive a full state pension entitlement of £11,502 per year if at the qualifying age. We remove this from the calculation if you are under the qualifying age.

    You can get a personal State Pension Forecast here

    Income Tax

    We've used a basic English income tax calculation, which assumes you will not receive any additional income at retirement.
    Tax treatment depends on your individual circumstances.
    Your circumstances and tax rules may change in the future.

    Contributions

    The tool assumes that contributions will be made every year including the year of retirement, with monthly contributions annualised for calculation purposes. With the results showing any contributions ceasing before age 75.

    Growth Rate

    We've assumed a growth rate of 5% per year to your pension value, annualised for calculation purposes.

    Inflation

    We've assumed a 2% inflation rate in line with current FCA guidance, annualised for calculation purposes.

    Charges

    We've assumed a charge of 0.7% per year, annualised for calculation purposes.

    Tax-Free Lump Sum

    We've assumed that a 25% tax-free lump sum will be taken out of your pension, and the full amount of projected pension will be taken as income. However, it is possible to amend this percentage.

    Retirement Living Standards

    We use estimations from the PLSA/Loughborough University Retirement Living Standards for a single person.

    Withdrawal rate

    We've assumed that you are taking a guaranteed income for life, also known as an annuity at 4% per year of the projected funds. This will be after any tax-free cash up to 25% has been taken.

    Pension allowances

    We've not assumed any tax charges from exceeding allowances such as the annual allowance or money purchase annual allowance.

    Net and Gross Figures

    All of the figures we provide are net (i.e. after deduction of income tax) except for the gross monthly pension contribution figure.

 

Go for it​

Money doesn’t have to be hard and we’re here to help. Book in a free session with a Financial Coach to chat about any money questions you have. We can help you work towards your financial goals.

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Save & Invest calculator

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What is investing?

Find out more about investing and knock down any barriers.

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Pensions calculator

Our pension calculator offers a guide to what your retirement income could look like. 

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Set and track your goals

Whatever you may be saving for, you can now set, manage and track your goals.

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Important information – This article isn’t personal advice. If you’d like to discuss any of the topics covered here, including the actions for your individual circumstances, please contact your financial adviser. If you do not have a financial adviser, you may be able to access one through our partnership with Schroders Personal Wealth (fees and eligibility criteria apply). Unbiased is a service that finds a local adviser based on your requirements. You can also find mortgage brokers, accountants, and solicitors on Unbiased.
 
The contents of this page are accurate as of 10/01/2025. Our views and references to pensions, tax, investment, or their rules, may have changed since then.