How much will I need to retire?

It’s the big question that almost everyone will have thought about at some stage. It’s a tricky one at that — as personal to you as your retirement itself. But if you’ve found yourself mulling over this question a lot, or you aren’t sure if you’re on track to retire when and how you’d like, this guide should help.

Your retirement could be..

spending more time with your family, jetting off to a sunny second home somewhere, buying that impractical car you’ve had your eye on, or taking advantage of a free schedule to fit in time for those hobbies you might have neglected. Whatever it is, everyone has their own idea of what retirement looks like. It’s as personal as it gets. And after decades of hard work, why shouldn’t you get to live life to the full? But while it’s easy to dream about the lifestyle we might want, working out how to plan and save for it (and how much you might need) can be much harder.

Before you can confidently put an estimate on how big your pension pot will need to be when you retire, you first need to try and identify how much you’ll be spending.

  • Do you want to put your children through university or help them get on the property ladder? 
  • Will you still have part of a mortgage to pay off on a property? 
  • Do you or a loved one need support paying for long-term care?
  • Will you downsize and find a smaller retirement home?

Or do you want to enjoy what you’ve earned and splash out a little?

It’s only by thinking about the big events in your family’s future that you can

begin to get a feel for that elusive magic number.

Your spending pattern will change over the course of your retirement.

The first decade you’re likely to go on all those exotic holidays, splurge on a few luxuries and have a more relaxed attitude to your spending. And of course, you’ll need more if you’re still paying off your mortgage, too.

So what does this all mean for the income you’re likely to need in retirement?

Well, while it’s worth putting some thought into the sorts of things that’ll drive your spend in retirement, the Money Advice Service has put together some useful ‘rule of thumb’ advice.

It suggests you’ll need at least half of your current income in retirement to maintain your current lifestyle, and more, if your current earnings are lower)…

Once you’ve got an idea for roughly how much you think you’ll need to spend in retirement, you can then start to put some numbers against how big your total pension pot will need to be.

There is a general rule of thumb that you can take up to 3.5% of your total retirement savings every year for up to 30 years before running out of money.

It’s known as the ‘safe withdrawal rate’ set by the Institute and Faculty of Actuaries.

It’s typically used as a benchmark to advise on:

• How much you should have in your portfolio before you can retire

• How much you can safely take from this as your income each year — assuming your

retirement lasts for 30 years.

Of course, your circumstances and spending habits will be unique, and so everybody’s individual scenarios will be different.

Another point to think about is that this rule of thumb assumes your retirement will last for around 30 years. But we’re all living much longer and life expectancy is continuing to increase. What if you spend 40 or 45 years in retirement?

Running out of money after 30 years isn’t a chance you want to take.

If you think your retirement could last 40 years or more (which, if you’re retiring early, could well be on the cards), your safe withdrawal rate will get proportionately smaller.


Although it’s something none of us like to think about, our health will inevitably decline as we get older. And it comes with a price.

On average, residential care costs £617 per week in the UK (£721 in London), while for nursing care you’re looking at a basic weekly rate of £844 (£922 in London).  You’ll be required to pay the bulk of the costs if you have the means. In some cases, this can mean losing your family home to foot the bill.

Though not an enjoyable conversation, planning and saving for medical care in later life could save you and your family a lot of heartache.

One of the best ways to save for your retirement is, unsurprisingly, through your pension.

Pensions come with attractive tax relief. If you’re a basic rate taxpayer, your tax relief will be 20%, for higher-rate taxpayers it’s 40% and for top-rate taxpayers, it’s 45%.

In other words, a monthly pension contribution of £1,000 would cost an additional rate taxpayer only £550 in real terms.

Tax breaks on pensions are there as an incentive to save. The government wants you to take advantage of them and not to rely on the state pension alone — which, at a mere £8,767.20 per year in 2019/20, is not enough for most people.

For this reason, your pension will probably always be your first port of call when it comes to retirement planning. But if you’ve reached your annual or lifetime allowance, what other options are there?


Anyone can save up to £20,000 in tax-free cash each year in an ISA account. There are a variety of ISA’s available, some offering greater flexibility than others over how and when you access your money


After your kids have flown the nest, you might find that your 5 bedroom family home is getting a little echoey. Downsizing before or during retirement, when done correctly, can be a nice boost to your savings funds, especially if you’re finding it more difficult to maintain your property as you get older.

Retirement planning to do list…

Set up a pension:

(if you haven’t already) Making regular contributions to a workplace or personal pension scheme is one of the most tax-efficient ways to save for retirement.

Make use of ISAs:

Any additional cash you have outside of your pension could be put into an ISA as another tax-efficient savings option.

Identify what you’re saving for:

Enjoying a better quality of life, travelling more, helping your kids/grandkids out, paying for medical care, or something else.

Map out your predicted expenditure:

Will you still be supporting your kids? How is your expenditure going to change during your retirement? What is your target annual income?

Calculate how much you might need:

Once you’ve got a feel for how much you might be spending each year during retirement, work out how much that translates to over the course of your retirement. Use the safe withdrawal rate as a guide.

Review and track your progress:

Remember to regularly reassess your expenditure and savings goals in line with any big life changes or market fluctuations.

Call us if you would like some help! 01206 331414 or 023 8076 2590