How Much Money do you Need to Retire in the UK?

A popular question asked of financial planners is, “how much do you need to retire in the UK?”.

There is no hard and fast answer, because of course it will depend on the age at which you wish to retire. If for example you have plans to retire at 60, then you will need a different plan than if you envisage retiring at 55. There are, however, some common factors to consider when thinking about how much money you need to retire in the UK.

How much income do I need if I want to retire comfortably?

Your retirement income could be made up of a variety of sources. For example, you may have a private pension, a State Pension, savings, investments and perhaps other income from a rental property or shares in a business. All of these will combine to fund your retirement.

The general rule if you wish to enjoy a comfortable retirement is that you will need in the region of 20-25 times what you will spend per year in retirement (assuming you will live for around 20 to 25 years after retirement). So for example, if your outgoings are likely to be £30,000 per year, then you will need a retirement fund of £600,000 – £750,000.

So next up you will need to look at what you may spend in retirement.

How to work out my retirement expenditure?

Working out what you might spend once you have retired should begin with a list of household expenses.

As well as your utility bills, you will need to factor in food, leisure, travel and clothing.

Some people may find their expenditure drops in retirement, for example if you are no longer commuting or having to buy work clothing. You may also have planned ahead to ensure the mortgage and any other finance was paid off by the time you retired.

However, retirement may bring with it additional outlay, especially if your plans include more travel or new hobbies.

If you are unsure as to what your retirement expenditure may be, you can use the 70 per cent rule. This dictates that on average in retirement, you will spend around 70 per cent of what you used to spend during your working life.

What if you don’t have enough money to retire at your ideal retirement age?

Sometimes, when looking at how much money you need to retire in the UK, you may discover that you won’t have sufficient funds to stop working at your ideal retirement age. The good news is that there are a range of solutions if this is the case.

Increase your savings

If you wish to retire at a particular age, you could attempt to put more savings aside. Cutting down on your spending may help you to do this, or you could carry out a review of your expenditure with a view to cutting back, perhaps negotiating better deals or switching to more affordable tariffs.

Boost your investments

If you have investments, you could look at rearranging them to achieve a greater return. An independent investment management service could help you get more out of your investments.

Take your pension early

You could also think about taking any final salary pension you have early. This may have disadvantages, however, so always take professional retirement planning advice before you make any decisions of this nature.

Push your retirement date back

Lastly, if it is looking like your ideal retirement age just isn’t feasible, you could consider pushing it back until you are financially comfortable enough to stop working.

How much do you need to retire in the UK without running out of money?

There is only one guaranteed way to ensure your retirement funds do not run out, and that is to use your private pension to purchase an annuity. This will give you a guaranteed income for life. However, the income will often be fairly small, unless you have managed to build up a significant pension pot.

The other way is to draw an income from your pension pot. This way, you can take as much or as little as you like, in line with what you need. Again there are risks, because if you draw too much, you will start to run down your pension.

Looking to find out how much you need to retire in the UK? Take independent, tailored advice from the specialist retirement planners at PMW.

At Partridge Muir & Warren, we have been advising individuals and couples on their retirement options for more than 50 years. Our advice is independent, widely trusted and completely focused on the best interests and personal goals of our clients.

If you would like to start looking at how much you need to retire, why not get in touch with our friendly retirement planning team, and arrange your no-obligation complimentary consultation?