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How much money do I need for retirement?

7 mins read
by Kate Morgan
Last updated Wednesday, April 10, 2024

This guide will help you figure out how much money you'll need 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.  

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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, Which? has done some sums, which account for three different lifestyles.

We can't stress enough these are rough estimates, but they should give you an idea about what you should be aiming for.  

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 £13,000 per year for a single person. If you're living with someone else, you'll need £19,000 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 £20,000, or £28,000 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 £32,000 for one or £44,000 for a couple. 

How can I work out my retirement income budget? 

Below are some questions to ask yourself or discuss with a financial adviser. 

  • What is the minimum income I need to cover my outgoings? Consider everything from your mortgage or rent payments and utility bills, which will likely rise if you spend more time at home, to transport and grocery shopping. These are the basics you need to be able to comfortably cover in 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.  

  • Am I entitled to state benefits? As long as you've made 35 years of national insurance (NI) contributions, either through work or by claiming certain benefits, you'll be entitled to claim a state pension. The maximum amount you can receive is £221.20 per week, adding up to around £11,500 a year per person, which is below the essential level of income if it's your way to funding your retirement.  

  • How much am I saving, or can I save towards retirement? It's best to start saving for retirement as early as you can. Whether you've already started or want to begin building your pension pots, tools like Unbiased's pension calculator work out how far your money will go.  

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.  

Using the estimates from Which? you would need a pension pot worth around £757,000 to buy an income of £41,000 a year.

You could enjoy the same lifestyle through income drawdown with £442,020 saved, but this is a riskier option with no guaranteed income at all.  

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 drawdown: Drawdown allows you to regularly withdraw income from your pension while allowing the rest of your fund to grow through investments. There will always be a level of risk, meaning you could lose everything if the stock market falls.

  • Annuity: This is an insurance product that guarantees you a certain income every year for the rest of your life. The amount you receive will vary depending on your health, how old you are when you buy an annuity and how much income you'd like to receive. 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. They might choose to pay off their mortgage, reduce their outgoings, or gift their children with 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. 

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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 and is generally only offered 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, like candidates over 40 are less likely to get a job offer, 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 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. 

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Kate Morgan
Kate has written for leading publications and blue chip companies over the last 20 years.