How much do I need to retire?

How your financial needs change in retirement

When it comes to calculating how much you need to save for your retirement, it’s easy to make the mistake of basing the figure on your current lifestyle. However, it’s important to recognise that your spending is likely to look different in your later years as your priorities change.

For example, you’ll have probably partly or fully paid off your mortgage by the time you reach retirement, and your children may have completed their education and left home. You won’t have any work-related expenses to worry about either, such as commuting costs or pension contributions.

Instead, you may be spending more on holidays and leisure activities, as well as things like healthcare, heating bills and insurance.

The Pensions and Lifetime Savings Association (PLSA) estimate that the annual income needed during retirement has risen in recent years, due to increases in the cost of living and an expectation that retirees may help out financially with grandchildren.

Being aware of how your needs will change throughout the course of your retirement is key to making the right long-term choices for your money.

How much does a single person need to retire in the UK?

How much you need in retirement will really depend on what kind of retirement you want. But the Retirement Living Standards, developed by the PLSA, aim to help people picture the kind of retirement lifestyle money can buy.

The latest figures show that a single person will need:

• £14,400 per year for a minimum retirement
• £31,300 per year for a moderate retirement
• £43,100 per year for a comfortable retirement

The PLSA suggests that a minimum retirement income will cover your essential needs, with some funds left over for fun. This might include eating out once a month and a long weekend break in the UK once a year.

A moderate retirement income gives more financial security and flexibility. For example, you may be able to take a two-week holiday in Europe and eat out three times a month.

A comfortable retirement provides more financial freedom and some luxuries. With this income, you could enjoy regular trips to the theatre or a longer amount of time spent on holiday.

How much does a couple need to retire in the UK?

According to the same Retirement Living Standards, a couple living in the UK will need:

• £22,400 per year for a minimum retirement
• £43,100 per year for a moderate retirement
• £59,000 per year for a comfortable retirement

While these figures can provide a useful starting point for working out what you’ll need for retirement, it’s more important to focus on your individual retirement plans and the type of lifestyle you’re working towards.

If you’ve already paid off your big expenses (for example, your mortgage), or you’re happy with a more modest retirement, you may need less than what is suggested.

If you’re ready to travel around the world or you’re planning a property renovation, you may need more than what is suggested.

How long will my money need to last?

Alongside the factors that have already been mentioned (namely lifestyle and expenses), you’ll also need to give some thought to how long your retirement is going to be. This will ultimately depend on when you plan to stop working and your life expectancy.

While life expectancy is something no one can predict, it’s clear that the longer your retirement, the more money you’ll need in your pension pot to sustain a comfortable lifestyle. For example, if the value of your pension pot is £300k, and your retirement is 10 years, that’s £30k a year. However, if your retirement is 30 years, that’s £10k a year.

A luxurious retirement may be more important to you than a long one, but you don’t want to use up your money too quickly and risk not having enough later on. On the other hand, you don’t want to restrict your finances more than you need to.

It’s also worth thinking about how inflation will affect how much money you’ll need to live on, as well as how long your savings will last. With this in mind, you may want to consider leaving some of your pension pot invested, so that it can continue to grow even after you start taking money from it.

Knowing how much of your money to keep invested and how much to take as income can be complicated, which is why it’s sensible to seek financial advice before making a decision.

It's important to remember that any investment comes with risk. All investments can go down as well as up, and you may get back less than you invest.

How much do I need to retire at 55?

Dreaming of an early retirement? While you can technically retire at any time, the earliest you can take money from your pension is currently aged 55. If you plan to retire at 55, it’s especially important to review your pension pots to ensure you’re on track to reach your retirement goals.

This is where speaking to a Specialist Financial Adviser from Wesleyan Financial Services could help. With expert knowledge of pensions and retirement planning, they’ll carry out a full analysis of your current pension arrangement and help you make well-informed decisions about your future finances.

How to increase your retirement income

Once you have an idea of how much you’ll need to live on when you retire, you can start to consider ways to generate that income. This might include:

• Starting a personal pension – Starting a personal pension can be a great way to give you financial security for your future. The sooner you start saving, the longer you have to build your pot ready for retirement.
• Contributing to a workplace pension – If you have access to a workplace pension scheme, it's usually worth taking advantage of it. Most employers will make a contribution towards your pension, which can help to boost your retirement savings.
• Investing wisely – Make informed investment decisions that align with your appetite for risk and long-term financial goals. This might include opening an ISA or diversifying across a range of asset classes.
• Review and consolidate your pension plans – Consider consolidating your pension pots into a single plan for easier management and potentially reduced fees.
• Seek professional advice – Get in touch with a Specialist Financial Adviser who specialises in pensions and retirement. They can create a retirement plan tailored to your individual needs, helping you to make the right financial decisions for your future.