How much money do you need to retire in the UK?

How much money you need to retire depends on your desired lifestyle and personal circumstances, like whether you’re married or have paid off the mortgage.

Retirement savings by age

It’s impossible to accurately predict how much you’ll need in your pension to enjoy a comfortable retirement because everyone’s circumstances are different. But one rule is broadly true; the earlier you start paying into a pension, the more likely you’ll be to afford to live a comfortable lifestyle.

This is because:

  • The earlier you start your pension, the longer your pension has to grow
  • The longer you pay into a pension, the less you need to pay in each month

The following examples have been calculated using the PensionBee pension calculator. We’ve assumed your employer will contribute £100 per month and that you’ll retire at 70.

To receive £20,000 per year from your pension (excl. state pension)

Your starting age Your monthly contribution
20 £210
30 £320
40 £520
50 £910

To receive £20,000 per year from your pension (incl. state pension)

Your starting age Your monthly contribution
20 £80
30 £140
40 £250
50 £460

Fortunately, most people earn more as they get older. So if you’ve started to pay into your pension a little later in life, you may be more able to afford to make larger contributions.

Use our pension calculator to see how much you might need to save to afford your desired retirement lifestyle.

Please note that our pension calculator assumes several important factors such as:

  • investment growth
  • a % increase in your contribution each month
  • you buy an annuity when you retire

To read more about the calculator assumptions, please visit the pension calculator and scroll down to ‘What are the assumptions’.

Pension auto-enrolment

As of October 2012, the UK government has required employers to enrol their employees into a workplace pension scheme. As part of the deal, employers are also required to make contributions. This has increased the number of people paying into their pension from a younger age.

How much do people spend in retirement?

A lot of things change when you retire, including your financial outgoings. Depending on your circumstances, you may stop paying for some things and start paying for others.

Costs that could fall Costs that could increase
Mortgage payments Healthcare costs
Pension contributions Insurance premiums
Commuting costs Lifestyle costs (holidays, socialising, hobbies, etc)

In February 2021, Which? carried out a survey to find out how much people are spending in retirement. The responses showed that the amounts varied depending on their lifestyle and whether they were living alone or with a partner.

Retired single people spent:

  • £13,000 a year for an essential lifestyle
  • £19,000 a year for a comfortable lifestyle
  • £31,000 a year for a luxury lifestyle

Retired couples spent:

  • £18,000 a year for an essential lifestyle
  • £26,000 a year for a comfortable lifestyle
  • £41,000 a year for a luxury lifestyle

Essential lifestyle spending covered just the basics, such as food, clothes, and housing. Comfortable lifestyle spending also included a few luxuries, such as European holidays, hobbies, and eating out. Luxury lifestyle spending also included things like long-haul holidays and a new car every five years.

The results suggest retirement can be more affordable when costs are shared with a partner (32% less per person, on average).

How long will you need your pension?

When you’re thinking about the kind of retirement lifestyle you’d like to lead, you’ll need to make sure your pension pot is large enough to carry you through to your twilight years.

The average 65-year old can expect to live for another 20 years, according to the latest government data. However, many people live much longer.

Fortunately, there’s no limit to the number of years you can claim a state pension. But at just over £9,000 a year, you’ll need to top this up with your personal pension if you want to cover more than essential costs.

How much do you need to retire?

No matter the type of lifestyle you want to lead when you retire, your options will be limited by the size of your pension pot. The larger the pot, the more it can pay out.

For example:

  • a £285,000 pot could pay out up to £20,000 per year for 20 years
  • a £425,000 pot could pay out up to £30,000 per year for 20 years
  • a £575,000 pot could pay out up to £40,000 per year for 20 years

It’s up to you how long you want to stretch out your pension to last; you could take out a larger amount for fewer years, a smaller amount over more years, or you could buy an annuity that pays out for the rest of your life.

Income drawdown

Taking out (drawing down) money from your pension in installments is a common way to receive retirement income.

The first 25% of withdrawals are fax-free. And any further withdrawals will be considered taxable income.

Pension annuity

You can use some or all of your pension pot to buy an insurance product called an annuity. In return, the insurance company pays out a regular income for the rest of your life.

There are many different types of annuities, but they all share some common traits:

  • you’ll receive regular payments
  • they’re not linked to the stock market (unlike pensions)
  • income is taxable

An annuity may be suitable for those who prefer the safety of a guaranteed income, and expect to live to (or beyond) the average life expectancy.

Other sources of income

A pension isn’t the only source of income you could rely on in retirement.

You may also receive money from:

  • Property rental
  • Savings
  • Royalties
  • Other investments
  • Taking on part-time work

You could also raise money by releasing equity in your home, though you’ll want to speak with a financial adviser before doing so.

Whichever approach you take, deciding what to do with your pension is an important and personal decision. Sometimes circumstances can decide for you, but it’s generally a good idea to try and make your pension last as long as possible.

How much can you save for retirement?

There’s no limit to the amount you can pay into your pension, however there is a limit on the amount you can pay in tax-free. You’ll pay tax on any payments over this limit.

The annual pension contribution limit

For most people, the total amount that can be paid into your pension is £40,000 per year or 100% of your income (whichever comes first). This includes payments from yourself, your employer, and the government’s tax top up.

If you continue to contribute to your pension after you’ve started to take money out of it, your annual tax-free allowance will be reduced to £4,000 a year.

Things are slightly different if you earn less than £3,600 or more than £150,000 (see How much can I pay into a pension each year?)

The pensions lifetime allowance

The cap on total pension contributions is £1,073,100. Exceeding either of these limits will incur a tax penalty.

Playing catch-up

If you’ve started paying into your pension a little later in life, or your pension pot isn’t as large as you’d like it to be, it may be worth making savings elsewhere in order to increase your contributions.

Our own previous research has shown that you could top up your pension by:

  • £250 a month cooking at home rather than going to restaurants
  • £108 a month packing your own lunch instead of eating out
  • £100 a month buying own-brand products
  • £47 a month brewing your own coffee instead of buying out
  • £26 a month by switching utility suppliers and your bank

Combine your pensions with PensionBee

Knowing how much to save for retirement is simpler when all your old pensions are combined into one easy-to-manage plan.

After combining your pensions with PensionBee, you’ll be able to:

  • Use our retirement planner to see if you’re on track to meet your savings goal
  • Adjust your contribution amount up or down to meet your goal
  • Withdraw from the tax-free portion of your pension from the age of 55

Combine and manage your pensions with PensionBee.

Risk warning

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.

Article last updated: 10/06/2021

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