How Much Money Do I Need To Retire Comfortably? (2024)

How Much Money Do I Need To Retire Comfortably?

Have you ever wondered how much you really need for retirement?

Today, I want to help you visualise exactly what that could look like for you depending on whether you're hoping for a Minimum, Moderate, or Comfortable lifestyle at retirement.

The goal is for you to i) become more aware, ii) understand what to do next, and iii) take action.

Talk of retirement can get overwhelming as it's complicated and there are many things to think about.

If you need to personalise these retirement numbers to your unique circ*mstances, feel free to get in touch.

Are You Saving Enough For Retirement?

Research from the Pensions and Lifetime Savings Association (PLSA) on Retirement Living Standards in 2023 identified some revealing stats about retirement.

The report found that 77% of people do not know how much they need for retirement and only 20% were confident they were saving enough.

They also found that 51% of people focus on their current needs and wants at the expense of providing for the future.

This is understandable given the rising costs of living, which even led some people who retired over the pandemic period to unretire in order to earn more.

In addition, they found that 70% of 35 to 54-year-olds, self-employed savers have less than £25,000 ($30,000) of pension savings.

That's 7 out of 10 self-employed people, which is a big deal.

One of the more encouraging stats was that 70% of people said that targets would help them save more.

So hopefully, today's post will encourage you on your journey toward preparing for retirement.

The Different Types of Retirement Lifestyles

To help us figure out how much we need for retirement, the Retirement Living Standards split things into three levels of expenditure.

• Minimum lifestyle
• Moderate lifestyle
• Comfortable lifestyle

To help us understand the amount we would need to live the lifestyle that we want about retirement.

Participants in this research were essentially walked through a typical UK home to assess the right budget for different lifestyle needs.

They looked at these different areas:

They also take into account different circ*mstances like living inside of London or living outside of London; and whether you are a single person or a couple.

In addition, the impact of Covid on retirement outcomes was factored in.

See Also

What Factors Impact Whether I'll Retire Comfortably?Challenges involved in Australian Real Estate Investment MarketHome Loan Advice For Young CouplesThe Ultimate Guide to Using a Cash Budget - Penny Pinchin' Mom

They also made some notable assumptions (pay attention to the housing assumptions):

How Much Money Do I Need To Retire?

Whilst reading the retirement numbers below, think of the different sources that your retirement income could come from:

• Pension – Defined Benefit or Defined Contribution (taken via Drawdown or Annuity)
• ISA – Lifetime ISA, Stocks and Shares ISA, Cash ISA, etc.
• State Pension
• Property
• Business
• Part-time work, etc.

Here's the big reveal of the UK retirement living standards as of 2023.

1. How Much Money Do I Need To Retire For a Minimum Lifestyle?

A minimum lifestyle at retirement is one that covers all your basic needs with some leftovers for fun.

In addition, it's about having what you need in terms of opportunities and choices so that you can participate in society.

The key thing to note with the minimum lifestyle numbers below is that it assumes that you will still have housing costs (mortgage or rent) to pay at retirement.

Single Person

• A single person outside of London would need an income of £12,800 per year.
• A single person living in London will need £13,200 per year (as of 2022). 2023 TBC.

Couple In A Relationship

• A couple outside of London would need an income of £19,900 per year.
• A couple living in London will need £21,100 per year (as of 2022). 2023 TBC.

Being in a relationship appears to have some advantages from a cost-savings perspective.

2. How Much Money Do I Need To Retire For a Moderate Lifestyle?

A moderate lifestyle at retirement gives you more financial security, flexibility, and options to do what you would like to do.

Single Person

• A single person outside of London would need an income of £23,300 per year.
• A single person living in London will need £28,300 per year.

Couple In A Relationship

• A couple outside of London would need an income of £34,000 per year.
• A couple living in London will need £41,100 per year.

These costs factor in more money for things like alcohol, social and cultural participation, etc.

There is also a bigger gap for couples living in London vs outside of London.

3. How Much Money Do I Need To Retire For a Comfortable Lifestyle?

A comfy lifestyle at retirement includes more luxuries and financial freedom.

Single Person

• A single person outside of London would need an income of £37,300 per year.
• A single person living in London will need £40,900 per year.

Couple In A Relationship

• A couple outside of London would need an income of £54,500 per year.
• A couple living in London will need £56,500 per year.

The cost of a comfy lifestyle for a couple inside or outside London is almost the same, which came as a surprise to us.

It's worth remembering that there is no rent or mortgage included in these numbers.

This implies that if you do plan to still rent at retirement, or if you're still planning to have a mortgage, then you need to factor those additional costs into your numbers.

How Big Does My Retirement Pot Need To Be?

You might be thinking to yourself, what do the above numbers mean for me?

I want that Comfy or Moderate or Minimum lifestyle 🤔.

• How does that goal compare to where I'm now in my retirement savings now?
• What do I need to do next to get to that place where I have that annual income?

Below are the estimates according to the PLSA for how much of a pension pot you need.

Pension Pot Required For a Single-Person:

Let me explain the numbers above assuming you want a Comfortable lifestyle (for example) at retirement.

The above table is saying that:

• A comfortable lifestyle requires an income of £37,300 (before tax).
• To achieve this income, you need income from 2 sources – State Pension and Personal Pension.
• Assuming you retire at age 66 and take the full state pension of £10,600 per year, you'd need an additional pre-tax income of £32,882 per year.
• £10,600 + £32,882 = £43,382 Gross income. Once taxed, you end up with a net income of £37,300 required for a comfortable lifestyle.
• That additional income of £32,882 needs to come from a Private/Workplace Pension pot.
• To work backward and estimate the Pension Pot you need to create this income, they suggest using an Annuity formula. i.e. You get £6,200 for every £100,000 in a Pension Pot.
• In order to estimate the pension pot required, the calculation is £32,882 / £6,200 x £100,000 = £530,000 (in the table above on the RHS).

You can then repeat the same process as above for the Moderate or Minimum lifestyle to see how they got £248,000 and £36,500 respectively.

The most important assumption here is that these numbers assume that you retired at 66 (State Pension age). If you plan to retire early, you'd need an even bigger pot.

Let's now look at the pension pot size that you need for a couple below.

Pension Pot Required For a Couple:

Note that the numbers on the right-hand side are per person. i.e.

• Comfortable lifestyle requires a pot of £656,000 (£328,000 x 2)
• Moderate lifestyle requires a pot of £242,000 (£121,000 x 2)
• Minimum lifestyle requires a pot of £0 (i.e. the state pension covers it)

Again, there are material advantages to being in a couple situation.

For a Moderate lifestyle, a single person needs a £248,000 pension pot, but a couple needs a total of £242,000.

You also notice this for the Minimum lifestyle where a Couple needs £0 additional funds vs £36,500 required for a Single person after taking the State Pension.

Obviously, not everyone wants to be in a relationship, however, I thought this difference is worth highlighting.

What If I Want To Retire At 55?

Everything I've shared so far can feel overwhelming.

One positive thing we've achieved so far is that you'll hopefully by now know if you need a Minimum, Moderate, or Comfortable lifestyle at retirement.

If you want to personalise this even further for yourself, this is where a Retirement Calculator comes into the picture.

You can search online for a free calculator, however, please pay very close attention to the assumptions made by the calculators.

Alternatively, get our Freedom Acceletor Retirement Calculator and watch a demo on how to use it here:

In addition, consider getting coaching from someone skilled in financial planning or book a Power Session with me.

What About Mini Retirements?

I think the future will be made up of mini-retirements, especially for Millennials and Gen Z.

Most of us want a taste of the retirement lifestyle now and don't want to wait until the age of 55 let alone 67.

For this to happen successfully, there is still an urgent need to save and invest today in order to have a decent level of financial stability.

Plus, given time is the real asset, it's important to let compounding do the heavy lifting, so the earlier you can invest, the better the future that awaits you.

Living for today whilst hoping to have a decent future in older age requires careful life design.

This can be achieved by building part-time work into your retirement plans.

Read: Should Millennials Be Planning For Retirement Beyond Age 65?

What Should I Do Next About My Retirement?

Here are some things to consider doing sooner rather than later.

1) Check your State Pension National Insurance Contributions (NIC).

Click here to check your National Insurance Record.

You typically need 35 years' worth of NIC to be eligible for the full state pension.

However, for some people, it is 30 years, and for others, even more.

Login via the link above to see how many full years you've done.

This is important because it will determine what State Pension amount you get.

The current full state pension amount is £185.15 per week.

2) Decide On Your Retirement Goals

Here I mean, what income are you aiming for at retirement, and when?

Do you want to retire at 55? or 67? or when?

3) Work Out Your Current Pension Pot

This goes beyond just your pension pot.

How much do you have in your other retirement savings pots? e.g. Lifetime ISA, Stocks and Shares ISA, etc.

4) Use a Retirement Calculator

This will help you decide how much you need to be saving and investing monthly today in order to achieve your desired pension pot.

Make a reasonable assumption about what investment returns you can get e.g. 5% is a decent average to aim for.

Feel free to get our Freedom Acceletor Retirement Calculator if you prefer.

5) Start Saving and Investing More To Meet Your Goals

This will likely require a shift in your lifestyle in order to save and invest more.

However, don't get discouraged. Try to look at this as a numbers game and don't get overly emotional about it.

Conclusion

Saving and investing for retirement is complex.

There are so many moving parts because we all have different retirement goals and lifestyles.

I hope this post has helped to make you more aware of your retirement goals.

If there is one thing to take away, it's the need to do something about this sooner rather than later.

Don't bury your head in the sand.

It's never too late to begin. Happy retirement planning 😀.

What to read next on How Much Money Do I Need To Retire:

• Pensions Explained UK: Ultimate Guide For Beginners
• How to Build a £100K UK Pension Pot in 5 Years
• Index Funds UK Explained: How To Invest For Beginners

What to watch next on How Much Money Do I Need To Retire:

How do you currently feel about your retirement savings? Are you aiming for a Minimum, Moderate, or Comfortable retirement? Jump in the comments with any questions.