How much do I need to retire?

When you think of your retirement, what do you see? For some, retirement is the time to slow down and kick back, spending more time with your loved ones. For others, it’s the time for a once-in-a-lifetime trip or finally renovating the family home.

However you picture your life after work, you’ll need the funds to bring your plans to life. Which brings us to the big question, how much do you really need to retire?

Let’s talk numbers

There are many figures out there that suggest how much money you might need in retirement. While it’s clear that every retirement is different, you can use these figures as a starting point for working out your own retirement income needs.

The Retirement Living Standards is an independent research project that looks at the income and expenses of real retirees. Their figures show how much someone may spend during their retirement, and they break these down into three categories: minimum, moderate and comfortable.

Assuming that you’re mortgage-free, the minimum amount covers necessities with a little left over for a monthly date night and a yearly staycation. The moderate amount offers more financial security, enough for a holiday abroad and more fun plans. The comfortable amount gives you greater financial freedom, allowing for more lavish spending and extra trips in the calendar.

For one person:

Minimum: £13,400 a year
Moderate: £31,700 a year
Comfortable: £43,900 a year

If you’re part of a two-person household, these figures look a little different:

Minimum: £21,600
Moderate: £43,900
Comfortable: £60,600

It’s also worth considering your current salary and lifestyle as what you’re used to may be different to these figures. For example, Moneyhelper recommends aiming for 50% of your salary if you earn £51,300 or more.

It’s likely that you’re a higher earner given your career path, meaning you might need more money than your average retiree. You may also be used to a more affluent lifestyle that you’d like to continue in retirement. This brings us onto our next step, making it personal to you.

Making it personal

Now you have a general idea of what you might need in retirement, it’s time to take a look at your individual needs and plans for the future.

We’ve put together the following questions to help you start thinking about what your retirement might look like (and how much it could cost you):

What age do you plan on retiring?

Planning well gives you more freedom over when you retire. The earlier you retire, the longer you’ll likely have to make your money last. Do you have enough in your pension to sustain a lengthy retirement?

What are your fixed outgoings?

Aside from household bills, what other fixed outgoings will you have in retirement? Will you still be paying off your mortgage? Perhaps you have a gym membership or monthly subscriptions to factor in?

What are your plans for retirement?

As well as day-to-day living expenses, you’ll need to factor in any big plans, such as home renovations or extended holidays.

What kind of lifestyle do you want to live?

If you want to do more with your retirement, you’ll need the funds to do so. Think about how often you like to go out for meals or trips away.

Are there any future costs to consider?

What would happen if your health declines and you need to pay for care? Do you have any children or grandchildren you’d like to help out financially?

Do you have a partner?

Whether you’re married, in a civil partnership or co-habiting, you should consider both of your financial situations together. It’s also worth thinking about what position you want your partner to be in financially should you pass away before them.

Funding your plans

Where will your retirement income come from? If you have an NHS Pension or a personal pension, it’s likely that these will fund a large part of your retirement. If you’re wondering how they compare, we’ve explained all in our handy guide.

A personal pension can usually be taken a few ways. For example, you might consider an annuity to provide you with a regular income, or you might prefer a lump sum that you can manage yourself. There’s also the option of a flexi-access drawdown, which allows you to access part of your pension while the rest stays invested.

Whether you decide on one or more of these options, you’ll need to strike a balance between enjoyment and longevity.

The NHS Pension works a little differently. You’ll typically receive a fixed income from the point you retire. Sometimes this will include a lump sum payment. You can find out more about the NHS Pension Scheme in our detailed guide.

You should note down some key dates when it comes to applying for your NHS Pension. You should start the process around six months before you retire to make sure your pension payments start on time.

Don’t forget the importance of a state pension. At over £12,000 per person, it can be a considerable income boost in retirement. You can get your state pension estimate online.

The most important thing is making sure your money will last. If you choose to retire earlier than your normal pension age, then your NHS Pension income will reduce as a result. You’ll need to make sure you can afford to retire early if this is something you’d like to do.

Plugging any gaps

If your pension isn’t where it needs to be, you’ll need to either plug the gap or adjust your retirement plans accordingly.

For example, a common issue that we see is NHS Pension members in both the 1995 and 2015 scheme who want to retire at 60 but can’t access their 2015 benefits until 67 or 68 without facing a reduction. This then leaves them with 7/8 years to account for financially.

If retirement is a while away, you may want to look at ways to build up your pension. If you’re an active member of the 2015 NHS Pension Scheme, then you may be able to purchase additional pension. You can do this through a one-off payment or regular monthly payments for a set time.

If you’re wanting to access your pension earlier than 67/68 without a reduction, there’s the option of Early Retirement Reduction Buy Out (ERRBO). It won’t increase your pension as much, but it will give you access to a little more money earlier.

There’s also the option of Money Purchase Additional Voluntary Contributions (MPAVC). You can find out more about this on the NHS website, but in summary this allows you to build up a separate retirement fund.

Outside of your pension, you can look to subsidise your retirement fund with savings or investments. For fixed-term savings, lifetime ISAs or investments, you’ll need to factor in when you can access these. You may face financial penalties if you withdraw before your term ends, or it may not be a favourable time to sell any shares or fund units.

You may also have property to sell, whether that’s a second home or you’re downsizing your residence ready for retirement.

Getting financial advice

If you’re looking to start planning for your retirement, you may want to get personalised advice from a Specialist Financial Adviser. At Wesleyan Financial Services, we can help you get a clearer picture of what your retirement might look like with your current finances, as well as putting together a plan to help you get to where you want to be.

It means you won’t have to plan for your retirement alone, as your adviser can help you every step of the way. You can book an appointment to get started. Advice charges may apply.

While you wait for your appointment, you may be interested in reading our guide to retirement planning for medical professionals.

How much do I need to retire?