How much do I need to retire?
We take a look at three national income targets which could help you decide how much money you need to retire.
Most people strive to live comfortably in retirement. But how much you’ll need to live on, and so need to save for the future, can be hard to pin down.
Industry research suggests that 77% of savers don’t know how much income they’ll actually need when it comes to their retirement. And only 20% are confident they are saving enough.
To help simplify saving for retirement, the Pensions and Lifetime Savings Association (PLSA) proposed retirement living standards. These have been designed to help people picture what lifestyle they want in the future, and how much income they’ll need to achieve that lifestyle.
We hope you find this helpful but it’s not personal advice. You can’t normally access money in a pension until age 55 (57 from 2028). Pension and tax rules can change and any benefits depend on your circumstances. If you’re not sure what’s right for your situation, please ask for advice.
What are the standards?
The PLSA has proposed three living standards: minimum, moderate and comfortable. For a single person to reach a minimum standard of living they would need a yearly income of £10,900. A couple would need £16,700. This amount would allow for some social occasions, but means you wouldn’t be able to afford a holiday abroad or the cost of running a car.
To reach a moderate lifestyle a single person would need an annual income of £20,800 and a couple would need £30,600. This standard will allow you to spend more money on any nice-to-haves. You’d be able to afford a two-week holiday in Europe every year, and run a car.
At the comfortable living standard (£33,600 a year for a single person and £49,700 for a couple) you’d be able to enjoy a more lavish retirement. This includes taking an extended trip abroad, running a newer car that can be replaced regularly and spending more on weekly food shops and personal items like clothing.
|Single person yearly income*||Minimum £10,900||Moderate £20,800||Comfortable £33,600|
|House work||DIY and decorating one room every year||Some help with maintenance and decorating each year||Up-to-date kitchen and bathroom every 10/15 years|
|Food shop||£41 each week||£47 each week||£59 each week|
|Transport||No car||3 year old car replaced every 10 years||2 year old car replaced every 5 years|
|Holidays||1 week and a long weekend away in UK every year||2 weeks in Europe and a long weekend in the UK every year||3 weeks in Europe every year|
|Clothing & footwear||£410 every year||£730 every year||£1,200 every year|
|Birthdays||£10 for each birthday present||£30 for each birthday present||£50 for each birthday present|
Source: PLSA, October 2021. *These figures could fund this lifestyle for people living outside London.
The figures provide a rule of thumb and everyone’s financial circumstances are different. You may need to add other costs depending on your circumstances such as mortgage, rent, social care costs and income tax.
Most people dream of a comfortable living standard when they finish work, but are savers putting away enough money to reach this?
How much to save for retirement
51% of savers believe the minimum auto enrolment amount (8% of qualifying earnings, including an employer contribution of at least 3%) is enough to save for retirement. Unfortunately this is unlikely to be the case.
In reality, if an 18 year old started their working life today earning £18,000, 8% of their salary went into their pension and they were entitled to the full State Pension amount, they could end up with an annual retirement income of £19,900. This falls short of the moderate standard by £900 and is £13,700 short of the comfortable standard for single retirees.
But what if you’re not just starting out? In order to reach a comfortable standard, a 36 year old today who is a higher earner (£52,500 per year), and has already built up a decent pension pot of £67,000, would still need to pay a total of 20% of their salary into their pension (including employer contributions) each year starting today, plus be entitled to the full state pension.
These examples don’t assume career progression or time out of work. Both of which could influence the amount you’re able to save into a pension. It assumes annual investment growth of 5%, charges at 1.5% and a retirement age of 68. Figures take account of inflation and show the buying power of the pension in today’s money. Pension and tax rules can change in future. Figures are an illustration and actual income will depend on individual circumstances. The living standards were created to help you think realistically about what you’ll need or want to spend your money on.
Calculating your retirement income
To help you understand if your pension is on track to give you the retirement income you want, our pension calculator will show you what your pension could pay each year.
If you’re not on track, you could consider increasing your pension contributions or delaying your retirement. Don’t forget once you pay money into your pension, you can’t usually take it out again until you’re at least 55 (57 from 2028).
What help is available?
If you have any questions our Helpdesk is always happy to help and is available six days a week on 0117 980 9926. Monday-Friday 8am-5pm and Saturday 9:30am-12:30pm.
What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure. The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.