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How much do you need to retire?

For most people who are serious about saving for retirement, the question is always: “How much money do I need to retire?” Well, you’ve come to the right place to find the answer. This Moneyfarm blog will explain the size of your pension pot and the amount of money you will need to continue enjoying your current lifestyle after you’ve retired.

Where can my retirement income come from?Workplace pension, private pension, state pension, investment ISAs, rental income, and premium bonds
How can I increase my retirement pot?Save and invest more, spend less, get better investment returns, and retire later
Which is the best option – an annuity or a drawdown?Depends on individual circumstances
How much do I need to retire in the UK?Depends on the lifestyle you want in retirement

How much to save for retirement

Having enough money to enjoy the lifestyle you seek in retirement won’t happen by chance. You will need to consider your pension options and do some serious retirement planning.

What is retirement planning? It starts with considering what you want to do when you retire. For example, would you like to spend more time with your loved ones? Do you want to go cruising and travel the world? How much you need to retire depends on your goals.

What lifestyle do you want in retirement?

How much money do you need to retire? It depends on your aims. Whatever they are, you want to ensure you have enough retirement money to allow you to live a comfortable lifestyle. You will want to eat well every day, cover your utility bills easily, have a nice wardrobe of clothes, dine out, and go to shows now and again. Of course, a comfortable retirement means different things to different people, but whatever your goals, planning how to get there is key.

How much do I need to save for retirement?

When it comes to how much retirement money you’ll need, knowing what you would like to be able to do is the start of planning your retirement finances. Next comes the tricky part – calculating what it will cost you.

Calculating your retirement income

You’ve probably heard it time and time again: The earlier you begin saving for retirement, the better. Well, it’s true, and we are not afraid to reiterate it. Appreciating how much to save for retirement is paramount. If you don’t set your financial goals in good time, it will be hard to achieve them, and the later you leave it in life, the harder it will become.

What help is available?

Figuring out how much you need to retire can become a complicated process, and Moneyfarm has an excellent pension calculator that can help.

When it comes to saving for retirement, UK citizens can turn to Moneyfarm’s pension calculator. It’s detailed but simple to use. It helps you calculate the ideal monthly contributions required to get you to your target retirement income based on your current pension situation, the age at which you want to retire and how much annual gross income you want in retirement. It also considers money from employer monthly contributions from defined contribution and defined benefit pension schemes and your State Pension.

This calculator will indicate whether your estimated retirement income will be enough to meet your retirement comfort aims.

How much should you save into your pension?

Once you know how much retirement money you’ll need, you could be shocked. But, one thing that will be plain to see is that your state pension alone won’t cut it unless you wish to live the life of a hermit in retirement.

If you are employed, your employer will likely provide you with a workplace pension. If you’re not sure and need more clarification, please make enquiries. But even your state pension combined with a workplace pension might not give you the pension income you need. So, depending on your retirement ambitions, how much you need to retire might still seem like a bridge too far. This is when private pensions enter the frame.

If you should contribute more to your pension than you and your employer are currently contributing, you need to act fast. A private pension (also called a personal pension) or Self-Invested Personal Pension (SIPP), a type of personal pension, could be the answer.

If you are a high earner and are pondering how much you need to retire, don’t forget to take your pension lifetime allowance into consideration. You could face tax penalties if you exceed the current allowance of £1.073 million unless you’ve taken out a Lifetime Allowance protection.

How much do people spend in retirement?

How much money do you need to retire? It’s the key question, and the answer will vary depending on your targeted retirement lifestyle. A recent Which survey involving thousands of retirees reveals that, on average, households spend about £2,333 monthly for a comfortable retirement. The same survey by Which found that households aiming for a luxury retirement spend an average of £3,666 per month.

How much do you need to retire comfortably in the UK

For more insights into “how much pension do I need to live comfortably here in the UK”, you’ll find a very informative chart on the same Which survey mentioned above, showing the contributions you should be making at various stages of your working life.

For example, regarding how much you will need to save into a pension at 30, the survey shows that couples with no pensions need to be investing £769 per month to achieve a luxurious lifestyle when they retire, while couples with £100,000 in their pension need to be investing £470 per month.

While we’re on the subject of age, it brings us to another question you might ask yourself – how much do you need to retire at 55?

What is a good age to retire in the UK?

Again, your preferred retirement age is very personal. Some people can’t wait to retire, while others dread the thought of it. However, some people are figuring out how to retire at 55.

If this is your goal, you need to start saving early. Knowing the answer to “How much do you need to retire early can be scary. But with the right strategy, shifting 50s retirement savings into suitable investment vehicles can give you a nice lump sum to rely on in retirement. One way of achieving this is by reviewing your pension situation and, if appropriate, doing a pension transfer exercise.

Whether you have underperforming pension schemes or are finding it challenging to manage several pensions, transferring pensions to one potentially more lucrative fund could be the answer. But you need to remember that the sum you have invested can fall as well as rise.

How much will a 500k annuity pay in the UK?

Consider buying an annuity if you want a guaranteed, steady retirement income. But, annuities are not particularly generous in terms of income. According to financeband.com, in answer to how much will a 500k annuity pay UK residents – it will give you an income of £25,416.92 per year, or approximately £2,118 per month.

If you’re self-employed

If you are self-employed, you are still entitled to a state pension as long as you make the necessary NI contributions. However, you won’t be eligible for a workplace pension, so you’ll have to sort out a self-employed pension.

Of course, when asking yourself how much retirement money you’re going to need, the answer is the same as if you are employed. In other words, everything we’ve discussed above still applies.

Non-pension investments

When you have the “how much do I need to retire” discussion with people, most minds probably switch to pensions. But there are other options, when saving for retirement in the UK, such as investment ISAs. Remember that pension income is taxable, whereas income from stocks and shares ISAs is tax-free.

We are not suggesting you invest in an ISA instead of a pension, but it could be a good idea as an additional investment. But it’s important to consider when asking yourself, How much do I need at retirement?” that the value of investments can fall as well as rise.

FAQ

How much can I save for retirement?

You don’t need to worry about how much you can save towards retirement, as there is no limit. However, there is a limit on how much you can contribute before paying taxes. You can contribute 100% of your earnings into your pension per tax year; however, only the annual allowance is tax free. Also, you will incur taxes if your total pension exceeds the lifetime allowance.

How much do I need to save for retirement?

According to retirement living standards data, for a single person asking how much I need to retire, as an indicator, a comfortable lifestyle requires £33,600 per year, £20,800 for a moderate lifestyle, and £10,900 for a minimum standard of living. For couples, a comfortable lifestyle requires £49,700 per year, £30,600 for a moderate lifestyle, and £16,700 for a minimum standard of living.

How much do I need to contribute monthly to hit my pension goal?

The amount you need to contribute monthly varies depending on when you start saving and how much money you want to save for retirement. For example, if you start saving for retirement early, you will be required to contribute less each month because the contribution is spread out over a longer time frame.

Furthermore, if you start saving earlier, your savings will earn an additional return from compounding interest throughout its lifetime

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.