How much money do I need for retirement?
This guide will help you figure out how much money you'll need to retire and the questions you should ask to ensure a good retirement income.
It's tricky to know how much money you need to retire and live a lifestyle you're happy with.
While the amount will vary from person to person, we've put together some rough estimates of how much you need to retire and the questions you should ask to help you achieve a good income in retirement.
There's no minimum retirement income, and how much you'll need to budget will depend greatly on your lifestyle.
To fund a comfortable lifestyle you'll need an income of roughly £31,300 after tax per year for a single person.
One key thing to understand is whether the pension(s) you contribute to are defined benefit (DB) or defined contribution (DC).
It’s worth speaking to a financial adviser ahead of time to work out what you need for retirement and if you’re on track.
How much annual income do I need to retire?
There's no minimum retirement income, and how much you'll need to budget will depend greatly on your lifestyle.
Someone who plans to travel the world in retirement and dine out regularly will need more money than a retiree who enjoys cooking at home and exploring their local countryside.
To give people an idea about how much income they might need in retirement, industry body Pensions UK has done some sums, which account for three different lifestyles.
Bear in mind that these are rough estimates of what is needed by today’s retirees. So you may need more by the time you retire.
To fund a basic lifestyle, where all essentials like groceries and bills are covered, but there's little budget for the simplest of staycations, you'll need an income of roughly £14,400 after tax per year for a single person. If you're living with someone else, you'll need £22,400 between you.
If you'd prefer a 'comfortable' lifestyle, which gives you a little extra for short-haul breaks, leisure activities, gifts and alcohol, you'll need £31,300, or £43,100 per year for two.
And to fund a luxury retirement, where you're free to embark on long-haul trips, buy a new car every five years, and live life to the fullest, you'll need £43,100 for one or £59,000 for a couple.
| Single person household | Two person household | |
|---|---|---|
| Minimum lifestyle | £14,400 | £22,400 |
| Moderate lifestyle | £31,300 | £43,100 |
| Comfortable lifestyle | £43,100 | £59,000 |
How can I work out my retirement income budget?
For a more bespoke approach, it’s worth speaking to a financial adviser ahead of time to work out what you need for retirement and if you’re on track.
Below are some questions to ask yourself or discuss with a financial adviser.
How much do you currently have saved in your pensions and investments? They will be able to estimate if you are on track with your plans.
How much are you currently saving in your pension? They will give advice on whether you need to increase your contributions.
When do you want to retire? Retiring early means you’ll need a lot more set aside than someone who works until state pension age.
What is the minimum income I need to cover my outgoings? Advisers will consider what you’re spending now, your lifestyle and your goals for retirement.
How much would I like to be able to spend on non-essentials? Whether you want to travel, dine out a bit or take the grandchildren for days out, it's important to plan for non-essential spending, too.
Will you get a full state pension? Based on current rules, you’ll get a full state pension (currently £11,973) if you have 35 years of National Insurance contributions. The state pension age is currently 66, but is rising to 67 in 2028 and then 68 in the future.
If you'd like more information on when you can retire, check out our previous article on retirement age.
How much should my pension pot be worth?
This is a personal question that will depend on the lifestyle you'd like to have in retirement.
The sum will also depend on what you're planning on doing with it.
For example, you could save a significant pension pot and siphon it off slowly using pension drawdown, allowing the fund to continue growing, but as with any investment, this is not guaranteed.
You could purchase an annuity, giving you a set income every year.
Here are the estimates from Pensions UK about how much you might need to achieve a minimum, moderate and comfortable standard of living in retirement.
| How much pension wealth do you need by retirement? | Single | Couple (pension needed per person) |
|---|---|---|
| Minimum | £20k – 35k | £0 (covered by state pension) |
| Moderate | £330k - 490k | £165k-250k |
| Comfortable | £540k - 800k | £300k-460k |
Because many factors affect what you need, there is a wide range within these figures.
How much you need is affected by your life expectancy, lifestyle and how you choose to invest in retirement.
It’s also important to remember that these are current figures, and you could need more by the time you reach retirement.
Learn more: how long will my pension last?
What are my retirement income options?
You need to understand your options well before your retirement.
There isn't a one-size-fits-all solution, so you must discuss your plan with an independent financial adviser before taking any action that could put your money at risk.
Below are some of the most common options worth discussing with an expert.
| Pension options | Description | Things to consider |
|---|---|---|
| Pension drawdown | Drawdown allows you to regularly withdraw income from your pension while allowing the rest of your fund to grow through investments. | This allows you to keep your pension wealth invested, rather than making an immediate decision. However, there will always be a level of risk, meaning you could lose out if the stock market falls. |
| Annuity | You exchange your pension for a guaranteed income for the rest of your life. How much you receive varies depending on your health, age and other features. | It's a safe, reliable option but won't give your money the chance to continue growing through investment. |
| Withdrawing a lump sum | Some pensioners prefer to take a lump sum, which you can do from 55, rising to 57 in 2028. | You can use the cash to pay off your mortgage or gift your children a house deposit. You can take up to 25% of your pension tax-free, leaving the rest to continue growing or to go towards an annuity later. |
Defined benefit vs defined contribution pensions
One key thing to understand is whether the pension(s) you contribute to are defined benefit (DB) or defined contribution (DC).
A defined benefit, or a final salary pension, is rare nowadays, but was common 20 years ago. They are now generally offered only by large public-sector employers.
It guarantees you a set income for your retirement, either based on the average amount you've earned over your career or the salary you earned just before retirement.
If you have a defined benefit pension, you won't be allowed to cash it in.
That's because you essentially have a 'benefit' with the money that's gone into the fund rather than having a pension that acts as a long-term savings account. Instead, you'll receive a set amount of income.
Most private and workplace pensions are defined contribution, where you pay into a pension pot and use it to buy an annuity, pension drawdown or access a tax-free lump sum.
How much do I need to semi-retire?
Semi-retirement is a sensible stepping stone for many people who aren't quite ready to fully retire, either mentally or financially.
You'll be able to adjust to having more free time gradually and can supplement your state and private pension income with a salary.
Before you rush into semi-retirement, you must ensure it's a realistic prospect.
If you resign from your job without considering frustrating hurdles, such as the fact that candidates over 50 could find it takes longer to secure a new role, you could be on the road to serious financial difficulty.
If you're aiming for a comfortable income and live alone, you'll need to ensure the amount you can claim from state or private pensions (or both) and what you earn adds up to around £20,000.
Part-time or reduced working hours
Some workplaces will allow older staff to reduce their hours, either through job sharing (where one full-time role is covered by two part-time staff, with the salary being distributed pro-rata) or by moving into a similar part-time role.
For example, skilled professionals could move into consultancy or work on a freelance basis, which would give them control over their free time.
If that's not possible, some people take on a new part-time role instead.
Secure a new job before leaving your current position, especially if you cannot afford to retire completely, to ensure you'll remain financially comfortable.
Remember, every year you're retired means another year without contributing to your pot and depleting the funds you've worked hard to build up.
Don't leap unless you're sure there's the safety net of another role waiting.
Volunteering
Volunteering is a great option if you're financially comfortable but worry about having nothing to do in retirement.
Volunteering is unpaid, meaning it won't do anything to supplement your retirement income.
However, you might enjoy non-monetary perks in your role that reduce your outgoings a little.
If you're volunteering with a local school or community project, you could be offered free refreshments or transport.
And if your volunteering activity is something you'd happily pay to do as a hobby, or if you choose to volunteer abroad, you could save money on membership fees and some of your travel costs.
Using investments to fund retirement
You may also be able to semi-retire thanks to relatively reliable returns from assets such as property.
It's a great option if you're not eligible for or don't want to claim your pension or want to give up work completely without dipping into your retirement fund.
Not sure what the right option is for you? Find a financial adviser you can trust via Unbiased.
Get expert pension and retirement advice
Navigating the path to a comfortable and fulfilling retirement involves many personal decisions and complex factors.
From understanding your various pension options to calculating the precise funds you'll need for your desired lifestyle, the journey is unique to you.
Making these decisions without expert guidance can be daunting, which is why seeking professional financial advice is so important.
A qualified adviser can demystify the process, assess your individual circumstances, and build a robust strategy to help you reach your goals.
Unbiased can connect you with the right financial adviser to ensure you're on track for the retirement you deserve.
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