How Much Money Do I Need to Retire?

Valuable tips for retirement planning.

Updated: December 29, 2023
Matt Crabtree

Written By

Matt Crabtree

 

It's time to start planning your retirement. Here in the UK, the average retirement age is 65 for men and 64 for women. With the right pension plan, it could be much sooner for you. 

If you plan to retire in four or 40 years, giving your future self the best life possible is ideal. In this article, you'll learn about checking your retirement fund, ways to increase your retirement income, and valuable tips for retirement planning.

How to Check How Much is in Your Pension Pot

During the planning stage, you must ensure you have enough income for the pension lifestyle you deserve.

The first place to start is to see how much you've currently got in your pension pot and work out what money you need to retire.

For most retired people, income comes from three sources:

  • Workplace pension: if you've been working within the UK since 2010, it's more than likely you'll have been automatically enrolled in a workplace pension scheme.
  • State pension: a UK government's pension arrangement. Benefits vary depending on your age and national insurance contribution record.
  • Investments: if you own property or have made investments, these will count towards your income.

The amount of money saved in each source will differ between people. In the following sections, we will dive into more details about the three sources and how you can check how much you've already saved.

Workplace Pension Pot

In 2012, auto-enrolment pensions started in the UK, so any employee who meets the requirement will be automatically enrolled. Both you and your employer have to contribute to the pot every month.

The minimum amount of money you can add to your pension from your wages is 5%, and your employer has to match a minimum of 3% of your salary. So, the more you earn, the more you'll have added to the pot.

To see how much is inside your workplace pension pot, you should receive yearly letters (either digital or in person) providing you with updates and the total money saved. Alternatively, you can contact your pension provider to check your pension.

State Pension Pot

State Pension is a government scheme that depends on your National Insurance record. Your contribution determines how much you get paid when you retire. You will still get a State Pension if you have other income, like a personal pension. You may qualify for Pension Credit if you've reached pension age and have a low income.

You can check the State Pension forecast at any time via the government website, and this can be an excellent way to estimate how much you'll have in your State Pension pot when you've reached retirement age.

Investments

Investments can look like owning properties, shares in stocks, bonds and ISAs. Whatever you have from investments will add to your retirement funds. Not everyone has assets to invest, and that's completely okay. 

Check with your investment provider to see how much income you've made so far, and you can predict roughly how much to expect when you retire.

We can only give you an approximate figure you need to save to retire, as only you know the lifestyle you'd like to retire to. However, we've devised a rough idea to help you decide.

What Retirement Lifestyle Do You Want?

It's time to start thinking about how you'd like to spend your retirement.

Do you want a modest lifestyle or a lavish one during retirement? Looking at the finer details, like how many holidays you'd like a year, can help you create a realistic figure for your pension.

Factors to consider when you're retirement planning:

  • House maintenance: plan for any changes you wish to make to your home, like decorating, home improvements, and backups for any unexpected emergencies.
  • Allowances: working out how much money you spend on monthly food and utility bills can give you a good idea of potential money usage for your plan. Also, consider any social events and times you go out to eat each month too.
  • Transport: although you won't need a bus pass to get to work during your retirement, consider potential transport costs for your retirement.
  • Holidays: consider how many holidays you'd like to take a year during retirement. If you want a pleasant seaside holiday in the UK or sit in the sun with a book in Spain, different holidays will have additional costs.
  • Clothing and healthcare essentials: it's a good idea to give yourself a budget for clothing and other essential items for your everyday life. If you're a keen shopper, you may want to save more money for you to spend at a later date.
  • Birthdays and family events: we know you can't predict if a cousin will get married when you retire, but it's always good to practise keeping money aside for gifts and family events.

Retirement Living Standards

The Pensions and Lifetime Savings Association (PLSA) collaborated with Loughborough University to research and create Retirement Living Standards within the UK. The Retirement Living Standards help you picture the lifestyle you could have in retirement. 

There are three types of lifestyles: minimal, moderate, and comfortable. The two graphs below show each lifestyle and income for singles and couples.

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These estimates don't consider if you live in London, so if you're planning to live in London during your retirement, you'll naturally need more financial freedom than recommended.

The three retirement living standards will vary between people, as what one person finds a necessity like a car, for example, another person might value holidays more. Your retirement can be as unique as you are and will depend on individual circumstances. We've broken down the three types of lifestyles for singles and couples looking to retire.

Minimum Retirement Lifestyle

The minimum income for retirement is roughly £12,800 yearly for a single person and £19,900 for retired couples. A minimum lifestyle income will account for your basic needs and give you money for fun activities. If you're a minimalist, this could be your ideal lifestyle.

Moderate Lifestyle

A moderate lifestyle income is roughly £23,300 yearly for a single person and £34,000 for a couple. This income accommodates a standard living lifestyle and having more money to enjoy expensive items like owning a car and being able to replace it every ten years. With a moderate income, you can afford a two-week holiday in Europe if you fancy it.

Comfortable Retirement Lifestyle

A comfortable retirement consists of having about £37,700 for your annual income and £54,500 for couples. This income is a good goal if you're looking for a more luxurious retirement. This lifestyle will allow you complete financial security and yearly long-haul trips abroad, and you'll be able to buy a new car every five years.

So, if you've got your lump sum of cash in mind, you can now start weighing up your retirement options and creating the ideal pension plan. 

Suggestions for Improving Your Retirement Income

If you're looking to do more to secure your financial freedom once you retire, we've got some helpful tips to help improve your retirement income.

If you're looking to retire early or have a semi-retirement, these tips can also help you:

  • Workplace pensions: consider upping the amount you put into your workplace pension. Increase your monthly contribution to ensure you achieve the lifestyle you want later in life.
  • Private pensions: if you're hoping to retire soon, consider various private pensions like final salary pensions and other defined benefit pension schemes that pay you a steady income for your retired life.
  • Investing: there is always time to start investing in your future. Explore your investment options to see if you can make the most of any extra cash you may have. Consider opening an ISA or looking into shares and bonds. 
  • Start saving: consider saving any extra money left over from your wages and open a savings account to ensure guaranteed income when you need to retire. By saving a lump sum of money during your working life, you'll save enough for retirement. 
  • Semi-retirement: some people love to work, and that's okay! You can semi-retire if you wish to have a more chilled lifestyle but still work part-time. You can still use part or all of your pension if you semi-retire.
  • Financial advisor: if you need extra help with pension advice, we recommend reaching for personal advice on your finances from a financial advisor agency or seeking an independent financial advisor.

You decide the date you'd like to retire, and with the above tips, and the income from pension schemes, you'll have all the money you'll need to retire when you want.

Final Thoughts on How Much Income You Need to Retire

Ultimately, the decision is yours on your annual retirement income. As a single person or a couple, you could decide on an early retirement if you've got a plan ready.

Before you start planning your retirement, we've got some additional factors you should consider whilst building your retirement plan: 

  • Tax rules: Consider any applicable tax rules when deciding how much income you'd like for retirement. For example, you will pay income tax if your annual income exceeds your personal allowance.
  • Be realistic: Aiming for the minimum income is a realistic goal for your annual retirement income. Whatever you make on top of this will only add to the comfort of your retirement.
  • Tax relief: You can get tax relief if your employer takes workplace pension contributions out of your pay before deducting income tax. You can also get tax relief from your pension by self-assessment or by contacting HMRC directly.
  • Calculating how much money you spend: Remember, you will spend less than you currently do when you retire. For example, you'll no longer need to factor in travelling to work or lunch allowances.
  • Retirement duration: This may sound obvious, but you need to invest in having enough money until you end your life.
  • Marriage: If you're single or currently in a relationship, consider how much money you'd need if you were a retired couple. If you save as much as you can, remember that the person you potentially retire with will also have contributions but don't depend solely on this.

Take control of your finances and find the best financial tools for your retirement planning with CompareBank's comparison site. You can check out all the best banks and financial products the UK offers and compare them in one place.

Related Guides:

Frequently Asked Questions

Can I Retire with 500K in the UK at 60?

How Much Money Does the Average Person Retire with in the UK?

How Much Money Do You Need to Retire Comfortably in the UK?

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