Figuring out how much you and your partner will need for a comfortable income in retirement can be tricky. It’ll depend on several factors like how much income you’re used to, when you intend to retire and the lifestyle you hope to lead.
Data from the Department for Work and Pensions analysed earlier this year showed that the average UK retired couple has a weekly income of £576 or £29,952 a year, while one-fifth have a higher than average weekly income of £936 or £48,672 a year.
The average UK retired couple has a weekly income of £576
A 2018 study by Which? found that the average retired couple needs just £18,000 a year to pay for their essentials such as food, transport and housing costs. This amount rises to £26,000 if you’d like a more comfortable retirement, which includes occasional European holidays and other luxuries. If you want to take long-haul holidays and buy a new car every five years, you’ll need around £39,000 a year.
According to Which? you’d need to have a defined contribution pot worth £210,000 and the State Pension to generate a retirement income of £26,000 a year. Here are three simple ways you can increase the size of your pension to bring it in line with the average pot size for a couple and beyond.
1. Set a retirement goal
If you’re unsure of how much you should be saving for retirement our pension calculator can tell you. If you’d like to aim for a joint annual retirement income of £26,000 with your partner, simply halve that amount and input it as your retirement goal, along with your age and the age at which you’d like to retire. You can also enter how much you’ve already got saved and how much you’re currently paying into your pension.
Have you tried our pension calculator? No? Calculate how much you have and estimate how much you need for retirement. Jargon free, we promise 👊 #fintech #pensions #challenger capital at risk https://t.co/HzRmYsTzMx pic.twitter.com/zv0TldeQtn— PensionBee (@pensionbee) 13 August 2018
Our calculator will tell you how much you’ll need to save each month, and for how long, to reach this goal. You can then set the same goal for your partner and adjust as necessary based on their age and savings total. If you find that you’ll each have to save a large amount each month to reach your target, adjust the settings until you get to a more manageable amount. It may be the case that you’ll have to delay your retirement slightly in order to achieve the retirement income you want.
2. Pay into your pension
While you may intend to share your pension income with your partner in retirement, you’ll need to concentrate on building your own pension while you’re still working and generating an income. Not only can this help avoid a pension savings gap between you and your partner in future, it can also help ensure you have enough saved to look after yourself should your plans or circumstances change in later life.
Knowing how much to save into a pension is one of the biggest challenges people face when planning their retirement. The amount you save will be dependent on your individual circumstances and how much you can afford, but once you’ve set yourself a retirement goal, it’ll be much easier to see how the contributions you make each month can quickly add up.
The more you pay into your pension the more tax relief you’ll get from the government as for every £100 you pay into your pension, HMRC effectively adds £25 in the form of a tax top up. You can currently save up to 100% of your salary (up to £40,000) into your pension and benefit from tax relief.
If you’re paying into a workplace pension, your employer has to pay in too under the rules of Auto-Enrolment. The minimum employer contribution level is currently set at 2% of your annual earnings, as long as you’re contributing at least 3%, however this is set to increase to 3% for your employer and 5% for you within the next year.
If you have several old pensions you may want to consolidate them into a single pension plan so you can manage all of your savings in one place. This can give you a better overview of how your investments are performing and give you peace of mind that you’re on the right track to meet your goal.
3. Check your National Insurance record
While you shouldn’t rely on the State Pension to fund your retirement, it can be useful for supplementing your income. It’s worth remembering that your State Pension entitlement is based on your National Insurance record and how many years’ contributions you’ve made, and only you will be able to influence this. If you haven’t already retired, you’ll need at least 35 years’ of qualifying National Insurance contributions to receive the full State Pension of £164.35 a week or £8,546.20 a year.
Your State Pension entitlement is based on your National Insurance record
If you’ve taken time out of your career to care for your family or as a result of illness, you may be able to claim National Insurance Credits. It’s worth checking your National Insurance record sooner rather than later to ensure you and your partner are on track to receive the full amount, in order to boost your retirement income.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.