How Much Money Do You Need To Retire Comfortably?

Retirement probably feels a million years away, especially if you’re relatively early on in your working life. But, we all know how time flies, and before you know it, your retirement date will be just around the corner. But whether that’s something to look forward to or worry about depends on how financially well-prepared you are when your retirement arrives. In this guide, we’ve run the numbers for an average couple, to see how much money you and your partner really need to have saved in a pension between you, before you retire. This way, you can work out what’s achievable, and when to start saving. If you’re single or otherwise only planning for your own needs, simply cut the numbers in half.

How much do you really need to retire?

Essential expenses

The most important thing your pension needs to be able to do for you is to cover your essential expenses once you stop working. These include your housing costs, if you still have rent or a mortgage to pay at the point you retire, essential property upkeep and DIY, utility bills, groceries, and health and personal care costs. According to our numbers, your state pension – if you qualify for the full entitlement – can cover the lion’s share of these costs. Plus, when you reach retirement age, or are getting close, you become eligible for things like a free bus pass to help you get around without a car, free prescriptions if you need them, and free eye tests, which all help you keep your costs down. But, you will likely need a relatively small pension savings pot of your own, on top of your state pension, to cover all your costs and be able to afford a few treats.

Relaxing retirement

Once the cost of your essential expenses is covered, then anything additional you can save yourself in your pension can go towards making sure you can comfortably do what you want with your retirement. According to our sums, combining your state pension with a pot you’ve saved up yourself worth £205,479 could leave you with an annual income of £27,550. This should be enough to cover all your essentials, allow you to run a small car to get around, and enjoy a few treats. While you’ll likely still have to keep a budget, you’ll be able to make space in it for things you love, like a hobby or two, and annual holidays.

Luxury living

For many of us, retirement is about more than surviving, or getting by. It’s something we hope will allow us to make the most of having our time back, to spend doing all the things we couldn’t do as much as we wanted while we worked for a living. But, the more you want to be able to do with your golden years, from long haul holidays to indulging your hobbies and passions to finally installing that new kitchen you’ve been dreaming of for years, the more you’ll need in your pension kitty to pay for it. We estimate you’ll need enough saved to grant you a pension income of £44,250 to support a luxury retirement.

When should you start saving for retirement?

Well, now, really. While it’s never too late to start saving a pension, it’s never too early, either. Starting as soon as you can – even if retirement is still decades away – gives you more chance to accumulate a bigger amount in your pension pot and enjoy a more relaxing and luxurious retirement. It also means you can contribute to your pension without denting your finances too much in the here and now – relatively small contributions made for years will really add up over time. The later you leave it before you start saving up for a pension, the more you’ll need to pay into it every month to be able to retire comfortably.

How to get started saving for retirement

There are lots of different options available to help you save up for your retirement, whether its forty years away or just around the corner. Some of them come with tax relief to help more of the money destined for your pension make it into the pot, and some come with other perks and bonuses! Read more about some of the most popular options available in our guide. Just remember, it’s only information about what you could do, it isn’t advice on what we think you should do.

How we worked out the numbers in this article

We’ve calculated the average length of retirement to be 15.5 years, by comparing the current retirement age of 66 to the average UK life expectancy of 81.52 years (both checked September 2021).

All our lifestyle and pension calculations are based on couples who both qualify for a full state pension. As of September 2021, this equates to £275.20 per week, per couple.

Life expectancy, retirement ages and state pension entitlement may all change in the future, so please take these numbers for what they are: an impression of the sort of money you may want to aim to have saved by the time you retire, not a hard and fast requirement.

We also used these sources to help:

Retirement Living Standards: https://www.retirementlivingstandards.org.uk/ (viewed September 2021)

Which: https://www.which.co.uk/money/pensions-and-retirement/starting-to-plan-your-retirement/how-much-will-you-need-to-retire-atu0z9k0lw3p (viewed September 2021)

Pension Bee: https://www.pensionbee.com/pensions-explained/retirement-planning/how-much-money-do-you-need-to-retire-in-the-uk (viewed September 2021)