How much do I need to retire?

If you’re putting some money aside for the future, you’re right to be asking… How much do I actually need to retire? The answer depends on your personal circumstances.

How much you should save for retirement will depend on your answers to a few questions:

• How much do you currently have in savings and investments?
• How much do you expect to spend during retirement?
• When do you plan to retire?
• How much can you afford to save?

Stick with us, and we’ll guide you through everything you need to know.

But first, it’s important to remember that it’s never too soon to start saving for retirement. And if you haven’t already been putting some money aside, it’s not too late to start now. Whatever kind of lifestyle you’d like after you retire, it’s good to plan ahead.

How much do you currently have saved (and/or invested)?

Retirement savings and income often come from three sources, which we list below. When you’re working out how much you need for retirement, start by figuring out exactly how much you have saved and/or invested.

State pension

If you’ve worked for at least 10 years in the UK, you’ll be entitled to a state pension.

You'll receive the full state pension if you’ve worked and paid National Insurance (NI) contributions for at least 35 years. Currently, at the time of writing (2023), you’ll receive £185.15 per week, or £9,627.80 a year. This changes yearly; head over to Gov.uk for the latest.

This alone usually won’t be enough to live on comfortably once you retire, and that’s why many people have another kind of pension. Such as…

Workplace pension

If you’re an employee, your employer is obliged to enrol you in an occupational pension automatically. You and your employer will pay together into the pension, with your share coming automatically from your salary. And you’ll receive a contribution from the government, too.

Together, this will add up to a minimum of 8% of your income (although it could be a lot more, depending on your specific pension):

The average person has 11 jobs over their lifetime. That means that you might have more than just one workplace pension. We offer a free trace and transfer service to help you if you have lost track of your workplace pensions.

Personal pension

Self Invested Personal Pensions (SIPPs) or “defined contribution” pensions are pensions you arrange yourself.

How much you get out will depend firstly on how much you contribute. But, typically, SIPPs will invest your savings, meaning that you can get more back than the amount you put in.

What’s more, personal pensions often let you consolidate all your workplace pensions into a single fund. This way, your savings are much easier to track, as you’ll just have one fund to manage. But depending on your specific pensions, it might not be the right option for you.

Other personal investments

Alongside your pension, which is made up of your personal pension, any old workplace pensions and the state pension, you may have other investments, such as:

• Cash savings: These include anything you might have in a savings account or an ISA.
• Property: If you own a second home, you may be able to supplement your savings and pension with rental income in your retirement.
• Stocks and shares: Alternatively, if you own shares outside of your pension, any dividends or the sale of shares can contribute to your retirement income.

This is all wealth that can be accessed during retirement, if you need it. So, don’t overlook these investments when making your financial plans.

How much would you like to spend in retirement?

Everyone has different ideas of the kind of lifestyle they want in their later years. When working out how much you’ll need to retire, it’s a good idea to consider how much you’ll likely spend each month or year.

The amount you earn during your working life won’t be the best measure of how much you need during retirement, though. For many people, spending habits change. For example, after retirement, you might spend less on housing costs, childcare, and commuting, but you could spend more on insurance and health.

Recently, the Pensions and Lifetime Savings Association (PLSA) and Loughborough University calculated how much people might spend each year during retirement. They came up with three benchmarks for typical lifestyles.

Minimum or basic

• A single person: £10,900 each year
• A couple: £15,700 between them each year

The PLSA estimates that three-quarters of people would be able to afford this basic lifestyle, equipped with a full state pension and a minimal workplace pension. A couple who both have only a full state pension should be able to meet this quality of life.

This amount is calculated to cover all of life’s essentials:

• A week’s holiday and a long weekend in the UK each year
• £41 per week on food (or £67 between a couple)
• Redecorating one room a year
• £410 per year spent on clothing.

Moderate

• A single person: £20,800 each year
• A couple: £29,100 each year

According to the PLSA, over half of people can expect to achieve a lifestyle between minimum and moderate. If you’re in a couple and are able to share costs, you’ll be more likely to enjoy some luxuries.

Alongside essentials, this sum would give you some flexibility and a bit more financial security:

• Two weeks’ holiday in Europe and a long weekend in the UK each year
• £47 per week on food (£74 between a couple)
• Help with house maintenance and redecorating
• £750 on clothing each year
• A car, which you replace every 10 years

Comfortable

• A single person: £33,000 each year
• A couple: £47,500 each year

Finally, the PLSA estimates that one in six single employees will have an income between moderate and comfortable after retirement, including:

• Three weeks in Europe each year
• £59 a week on food (£94 between a couple)
• Replace a kitchen or bathroom every five years
• £1,000 to £1,500 on clothing each year
• Two cars replaced every 5 years

What age would you like to retire? (It will affect how much you'll need to save)

Not everyone wants to retire at the same time. You might want to stop work as soon as possible, or you could be happy to continue working into your older years.

Whatever your plans may be, there’s one thing to keep in mind: the earlier you stop work, the longer your pension will need to support you.

That means it’s worth considering at what age you can access your pension. For example:

• You can currently claim your state pension from the age of 66. For anyone born after 5 April 1960, there is set to be a phased increase in the state pension age from 66 to 68. If you’re still working at that age, you can still claim it. But you might choose to defer it, which means you’ll get more later on.
• For most personal pensions, you won’t be able to access your pension pot until you’re 55 (the minimum age is set to rise to 57 in 2028). That means if you want to retire sooner, you’ll have to find the money elsewhere. But the later you access your retirement savings, the more you’ll keep for later.
• Similarly, when you can access workplace pensions will depend on the specific pension policy. But typically, you may not receive as much each year if you access it early.

How much to save for retirement: two ideas

There’s no hard and fast rule about how much you should save for your retirement. It will depend on how much you can afford, the contributions you and your employer make, and any other sources of income you have.

That said, there are some rules of thumb that can give you a rough idea of how much you can put away.

• The “half your age” rule. How much of your salary should go towards a pension? Half the age you are when you start saving. This will be the percentage of your annual income to save.

So, if you’re 20 when you begin to save, put ten percent into your pension. If you’re 30, aim for 15 percent.

Heads up. If you’re on a workplace pension, this can include your employer’s contributions. But if you’re self-employed, you’ll need to cover it by yourself. That said, if you’re saving into a personal pension, the government will give you 25 percent of what you contribute in tax relief.

• The “two thirds” rule. Use this rule to work out how much you’ll need to maintain your current lifestyle after retirement.

So, you’ll need two thirds of your current income to enjoy the sort of lifestyle you can currently afford. So, if you currently earn £30,000, you’ll need to aim for £20,000 every year.

If you estimate that you’ll be retired for 20 years, then budget based on those figures. So, if you need £20,000 a year, that adds up to £400,000 in total over your retirement.

Final thoughts: Plan ahead for a comfortable retirement

Whatever your financial situation, it’s never too late to start saving for retirement. Everything you can afford to put aside today can help you achieve the lifestyle you want later in life.

Planning ahead is key. Here’s what you can do to get clarity on your retirement savings:

• Check your current savings and investments, as well as any existing or past pensions you have.
• Work out how much you’re likely to spend in retirement. The best guide here is your current lifestyle. Our pension calculator can help.
• Consider when you want to retire. It’ll make a big difference to how much you can afford.
• Keep saving. However much or little you can afford to put away, it’ll help you in the future. You’ll be pleased you did it.

When you invest, your capital is at risk. You should carefully consider whether opening a CIRCA5000 pension or transferring your old pensions is right for you. Please note that tax rules and reliefs depend on your personal circumstances and may change. CIRCA5000 does not provide any financial or tax advice, and you are responsible for your own tax reliefs/payments. This article does not represent financial advice. Your investments and the income from them can go down as well as up.