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How Much Do I Need To Retire?

Some people spend their entire working life saving for their retirement, whereas other people only start thinking about their pension by the time they’re in their 30’s or 40’s.

Whilst there is no exact amount, more and more people are wondering ‘how much do I need to retire?’

How Much Do I need to Retire?

Whilst there is no one set amount that you need to reach before you are able to retire, if you want an easy and comfortable retirement then you will have to work hard over a number of years during your working life to make sure that this is possible for you.

Unfortunately, lots of people think that if they earn a reasonable amount of money during their working life, then this automatically means that their retirement years will be taken care of.

However, this is simply not the case. In order to retire comfortably, you need to put money away each month for a number of years.

It is important to remember that when you retire, you will not longer be working and therefore won’t have the salary package and pay checks that you are used to each month.

You will also have more time on your hands, and might want to do things that you couldn’t do whilst working, which might cost you more money.

Whilst you might have paid off your mortgage by the time you retire, life might look very different by the time you come to retire. This might mean that you will have to spend more money on heating bills, insurance, healthcare and food over the next couple of years.

There has been a few studies who have found that in order to retire ‘moderately’ a retired couple who lives outside of London will spent approximately £30,600 a year between the two of them.

However, this latest study was carried out in 2021, before the cost of living crisis in 2020.

Nevertheless, this number is approximately £1,500 more than the previous studies carried out before the Covid-19 pandemic. This number will include a two week holiday every year and will also allow for £100 a month to be spent on eating out in restaurants.

In order to achieve a slightly more comfortable lifestyle, which will include a 3 week holiday a year, two cars and more food budget, then you will need approximately £50,000 a year for two people.

Nevertheless, it is incredibly important to remember that these figures are based on moderate to comfortable lifestyles, and are not the minimum amount of money you would need to simply live and get by in retirement.

So, if you see these figures and wonder ‘How much do I need to retire?’ then remember that not everyone can afford a three week holiday every year, even when they are working.

Let’s say that you retire aged 66 and live for another 10 years. This means that, according to these studies, you would need between £360,000 and 500,000 in pension retirement funds in order to live a moderate to comfortable lifestyle to see you through your retirement and the rest of your life.

Lots of experts throughout the financial industry use the following tool and tip to help people figure out how much they should be saving each month in order to ensure that they have enough money by the time they come to retire.

If you are wondering ‘How much do I need to retire?’ then you should use the following equation. Experts say that you should half your age, and then use that number as a percentage of how much of your income you should aim to save each month, or each year.

For example, let’s say that you start earning some money aged 20 years old, and decide that you want to start saving for your pension. This means that you should start to save 10% of your income, and be putting that towards your pension. When you hit aged 40, this would be 20%.

It is important to increase the amount of money you save up for your pension as you get older, as your salary typically rises as you get older too.

Depending on how much you earn, most people get their pension from three different places, including your state pension, your private pension and a workplace pension.

You might also have some money saved up in equity in your property, or some money saved up from personal and private investments you have made over the years such as stocks and shares.

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How Much Do I Need to Retire? – How Much is the State Pension?

If you are curious about ‘How much do I need to retire?’ then it is important to think about how old you want to be when you retire.

The current state retirement age is currently 66 years old across the UK for both men and women. However, this is likely to increase over the next few decades, which means that if you are currently aged 30 years old, you should expect to retire at a later age than 66.

This is due to the increase in life expectancy and improvements in healthcare and technology.

Once you hit state retirement age, whatever that might be, the Government will give you your state pension. However, state pensions are never as much as you would hope.

In fact, the current state pension sits at approximately £185.15 per week. However, not everyone will be entitled to this amount [1].

You will have to claim for this amount of money once you hit 66 years old. Once you have made this claim, you will be sent a letter stating how much you are entitled to. This money will then be paid into your account once a month [1].

As you can imagine, £185.15 per week will not get you very far, or last you very long. If you are wondering ‘How much do I need to retire?’ then depending on your state pension won’t be enough. If you want to live a comfortable retirement, then you should not expect to rely on your state pension.

If you would like more information on the state pension, then you should read our page ‘UK Pension Statistics 2022 – 2023.’

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How Much Do I Need to Retire? – Private and Workplace Pensions

When it comes to private and workplace pension, there is no limit when it comes to how much you can pay in each month or each year.

However, you will want to think carefully about how much money you want to pay into your private or workplace pension, as you will be taxed on anything over £40,000 per year. This is because £40,000 is the standard annual allowance for each tax year.

If you are a high earner then you will also need to bear in mind that the retirement tax lifetime allowance is £1,073,100 for every tax year.

This includes your workplace and private pension, so is important to keep an eye on if you earn a high amount every year.

When it comes to a workplace pension, it is important to understand that all workplaces are now required by law to provide all employees with a workplace pension. However, individuals are able to opt out if they choose to do so.

If you choose to opt in to a workplace pension, then a percentage of your income will be automatically taken out of your net income and paid into your workplace pension.

This means that although your net income will be less, a percentage of your money will be put away safely for your pension and retirement. Your employer will also contribute to your pension as a result of opting in.

How much your workplace pension is each month will be based on your gross income. As of April 2019, the minimum amount you contribute to your workplace pension is 8% of your gross income. This percentage will be split between you and your employer.

When deciding whether you should pay in more to your workplace or private pension, you should consider how old you were when you started, how much money you earn and what kind of a lifestyle you want to live during your retirement.

It is important to remember that your pension will grow in compound interest over the years, so the more you add the more interest you will earn.

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How Much Do I Need to Retire? – Increased Life Expectancy and Retirement

If you are wondering ‘How much do I need to retire?’ then you need to bear in mind that people are living longer.

This means that in order to retire comfortably, people will need more money saved up to last them a longer period of time, otherwise your pot of money will be stretched each month or will simply run out before you pass away.

According to the most recent study carried out by the Office for National Statistics, the current life expectancy is 79 years old for males and 82.9 years old for females across the UK [2].

However, it is important to understand that if you are in your 20’s or 30’s, this number is likely to significantly increase. This is mainly due to expected advances in technology and healthcare. In addition to this, newer generations are finding themselves more health conscious than previous generations.

For example, less people than ever are smoking. In fact, the number of people in the UK who smoke has reduced from 19.8% in 2011 to just 13.9% in 2019. After Covid-19, this is expected to have reduced even further [3].

In fact, this trend is due to decrease to as little as 2.5% by 2050 [3].

If you are worried that your current savings won’t last as long as you will need them to, then the best thing that you can do is to speak to a financial adviser for some help.

They will work out how much you have saved up in total, and work out what kind of a lifestyle you will be able to live if you carry on at this rate.

A financial adviser will be able to talk you through the best places to invest your pension funds, retirement and pension strategies, how to budget in retirement, how to minimise how much tax you have to pay and whether you would be entitled to any benefits.

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How Much Do I Need to Retire? –  How Much Do People Spend on Average When Retired?

If you are worried about ‘How much do I need to retire?’ then you will need to bear in mind that when people retire, their monthly spendings change dramatically. As you will no longer work, you will find yourself no longer having to pay for petrol to get you to work or lunches out whilst at work.

However, with more time on your hands, you will find yourself spending more money on things like home improvements, seeing friends or family or even travel.

According to a Which? Study carried out in 2021 [4], to find out how much people are actually spending during their retirement each year, depending on their lifestyle and whether they lived alone or with someone else.

When it came to how much money retired and single people spend whilst living a basic, essential lifestyle, they spend approximately £13,000 a year. This would include only basic living, which means no eating out or holidays.

According to the Which? Study [4], if you want to live a comfortable lifestyle then you will be spending £19,000. This would include some eating out but nothing too luxurious.

If you want to live a luxury lifestyle then the minimum amount of money you would need to spend each year whilst retired and living alone would be £30,000.

This would include eating out on a regular basis and going on multiple holidays each year [4].

If you are married, then these numbers increase slightly. If you want to live an essential lifestyle with your partner, then be prepared to spend £18,000 a year.

If you choose to spend your retirement slightly more comfortably, then be prepared to spend £26,000 a year [4].

Finally, if you choose to live a more luxurious lifestyle with your partner then you will spend upwards of £41,000 a year [4].

If you are worried about how much you currently have stored away for your retirement, or how much you might need to retire, then the best thing you can do is speak to a financial advisor for advice and support.

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How Much Do I Need to Retire? – Lifestyle

Depending on how you have lived your life, you might have certain ideas on how you would like to live your retirement. Some people work their entire lives and expect to live a comfortable and luxurious retirement.

However, others might choose to only work part time during their life, which means that they might be happier with a more modest lifestyle when it comes to their retirement.

If you are worried or confused about what kind of a lifestyle you want to live or can expect to live during your retirement, then you might find the following information useful.

The Pensions and Lifetime Savings Association (PLSA) categories three living standards when it comes to retirement [5].

  • A minimum lifestyle – where you can live a basic lifestyle with only the essentials
  • A moderate lifestyle – which gives you more financial security than the minimum lifestyle would allow, which gives you some flexibility and control on how you spend your money.
  • A comfortable lifestyle –which would allow you to live financially free, with some luxuries such as multiple holidays each year and nice cars

In order to work out what kind of a retirement you want to live and are able to live, you can ask yourself the following questions.

  • How many holidays are you used to having, and are they something that is going to be important to you going forward?
  • How many times a month do you want to be able to eat out during retirement?
  • How many cars do you currently run and how many cars will you need during retirement?
  • Are you currently a member of a gym, a health club or a golf club? Is this something you will want to continue during your retirement?
  • Do you have any home improvements you want to do whilst retired?
  • Will you want to move home when you retired?
  • Have you already paid off your mortgage or will you still need to pay your mortgage after you retire?

In order to help create a budget for your retirement, you could set up a spreadsheet with your expected spends and retirement income.

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When Should I Retire?

How old you are when you retire will have a huge impact on how much you will need to save throughout your working life.

If you choose to retire early, then you will need to make sure that you have enough money saved up in order to last you for the rest of your life.

The later you retire, the longer you will have to save up for your retirement and the more your interest will compound.

The current retirement age is currently set at 66 years old across the UK for both men and women. However, individuals are able to retire earlier than this, or choose to not retire at all.

In fact, your current circumstances might mean that you choose not to retire at all, so that you can keep your income and maintain a certain lifestyle.

However, despite what you choose to do, the longer you work the quicker your money will grow and the better your savings account will look.

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How Much Do I Need to Retire? – What Are My Pension Options?

When it comes to how you receive your retirement, there is no one size fits all solution. This is why it is important to talk to your financial advisor about all your pension options.

In fact, below is a list of the common pension options that you might want to discuss with your financial adviser during one of your meetings.

1. Pension drawdown plan

A pension drawdown plans allows you to receive your retirement on a regular basis in small amounts. This is a low-risk strategy for risk-adverse individuals who want access to their retirement funds whilst still allowing the rest of their pension and remaining savings to compound over time.

2. Annuities

An annuity is a form of insurance that means that you are guaranteed a certain amount of money each month for the rest of your life.

This will depend on how old you are, your current state do health and how much you want to receive. Whilst this is a great and safe option your money and interest will not compound.

3. Lump sums

Most people decide to withdraw one large lump sum when they retire, which you can do when you hit 55. You can spend this money on lots of different things, including paying off your mortgage, going on a holiday or paying for a loved ones house deposit or university fees.

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How Much Do I Need to Retire? – Should I Work Part-Time?

If you are worried about how much money you will need to retire, then you might want to consider working part-time throughout your retirement.

Working part-time is not only a great way of ensuring that you have some form of income during your retirement, but it will also keep your body and mind busy, too.

There are lots of places that will offer reduced working hours, so you might want to check with your current employer before retiring to see if they could offer you reduced working hours to see you through your retirement.

There are lots of types of jobs that work well for retirement, such as working as a school dinner lady, working as a waiter, working as a taxi driver or baby or pet sitting.

You might also be able to work as a freelancer during your retirement. A freelance works on an ad-hoc basis for a number of companies, and charges a certain rate for their work.

If you work freelance you will be responsible for your tax returns each year, which means you will need to do your own tax self assessment.

If you are wondering ‘How much do I need to retire?’ and are worried that you might not have enough money saved up, then you should seriously consider semi-retirement and working part time.

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How Much Do I need to Semi-retire?

If you think that you want to work part time during your retirement, then you might be wondering how much money you will need to semi-retire. By working part time you will be able to earn the money you need whilst also being able to relax when you’re not working.

Other people choose to semi-retire because the idea of retiring and stopping work immediately and suddenly might be too overwhelming for them, especially if they have had a demanding career.

Therefore, you might want to cut back on the amount of days you work to allow yourself to adjust to retirement slowly and in your own time.

If you are hoping to semi-retire and live alone, then you will need to make sure that the amount you earn does not exceed the tax threshold when combined to with your state pension.

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How Releasing Equity Can Help

If you are worried about not living a comfortable retirement, or not being able to retire at all on your current salary or savings, then you might want to consider equity release.

Equity release is available to homeowners across the UK who own a property worth £70,000 or more.

You have to be aged 55 or over, and must have already paid off a substantial amount of your mortgage already. If you have not, then you might be asked to use your equity release money to pay off your mortgage.

Equity release is a form of loan, which you take out in return for access to the equity that has built up in your home. You can receive your equity in one large lump sum or a number of smaller payments.

There are two different types of equity release loans commonly used across the UK, which are lifetime mortgages and home reversion plans.

1. Lifetime Mortgages

Lifetime mortgages are the most popular type of equity release in the UK. They allow people to take out a loan against their own in return for the equity inside their house.

With lifetime mortgages you do not have to repay a penny until after you pass away or move into a care home. Your next of kin will have to use the sale of your house to pay off the loan.

With lifetime mortgages, you will be charged interest on your loan. This interest will compound over time and end up costing you more. This is why you are allowed to pay off some of the interest on your loan whilst you still live, or can allow it to build up and compound over time.

The Equity Release Council ensures that all lifetime mortgages offered in the market are fair and responsible. They will ensure that all equity release plans benefit from fixed interest rates, and if they don’t then they should be capped.

Your equity release plan will also have a no negative equity guarantee, meaning that your next of kin will never owe more than the value of their house.

All money you receive will be tax free and you are able to spend the money you receive however you want to. Some might choose to spend their money on home improvements, a nice holiday or just general qualify for life.

2. Home Reversion Plans

Alternatively, you can opt for a home reversion scheme. This type of equity release involves selling a percentage of your house to the lender, in return for access to your equity. Again, you are able to receive one large lump sum or a number of smaller payments, and the money you receive will be tax-free.

If you would like more information on whether you should take out a lifetime mortgage or a home reversion plan, then read our page ‘Home Reversion Plan vs Lifetime Mortgage.’

If you are wondering ‘How much do I need to retire?’ then the best thing you can do is speak to a financial advisor. They will be able to guide you on the best places to invest your money and your retirement savings.

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