How much money will you need in retirement?

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 Please Note: Information in this blog was current at the time of publishing, but may no longer be up-to-date with current legislation. Please visit our blog for the latest pension articles.


Despite the huge importance of proper financial planning for retirement, many people fail to make it a priority. This is in part due to confusion over two main things:

For younger people there is a third reason, namely believing retirement too far away to be worthy of consideration - but this is a dangerous outlook that can cause big problems down the road. Pensions are like all other savings in that the earlier you start the better off you will be, and in many ways it is easier to save when you are  younger - before the expense of paying a mortgage and looking after a family.

There are multiple ways to save for your retirement, and the recent Budget has increased the annual ISA allowance to £15,000 cash (effective from July 2014), which is a great opportunity for many. As always, though, it's best to seek impartial advice, from a professional, before making financial decisions.

Now, the question of how much is needed is not so straightforward - just as there's no set length of a piece of string, there's also no standard answer for how much a person will want to spend. What's absolutely certain is that relying on the State Pension is not a sensible option - £8,600 is considered the minimum needed for an acceptable standard of living, and the current State Pension for a single person is £5881.20. Unfortunately, according to Prudential's Class of 2014 report, 7% of the men and 20% of the women retiring this year will be relying solely on the State Pension. We'd like those percentages to reach zero, which is why we offer free advice on pensions*.

Sadly, YouGov's report, "Pensions and Investments 2013: Retirement Planning and Gender", shows confusion abounds on how much is needed in retirement. When the respondents were asked how much money would be needed for a comfortable retirement,

  • 12% thought less than £100,000
  • 11% thought over £600,000
  • 24% were unsure but would like to know
  • 12% were uninterested

When asked how much a 65-year-old would need for a £10,000 annuity income, only 20% correctly said between £180,00 and £200,000, while 9% didn't know what an annuity was.

In order to gauge how much is needed in your retirement, you need to first give consideration to what sort of lifestyle you intend to lead. If when you close your eyes you envision champagne for breakfast aboard a 60-foot yacht in the Med, you'll need to put some serious money aside. If you have more modest expectations, it should be easier to determine what you'll need.

Chances are you'll want to run your own car (unless you really want to squeeze everything out of that free bus pass), and such expenses need to be considered. According to the AA, in the past two years fuel has increased 17% and insurance premiums 24%, although many new cars qualify for minimal or no road tax because of their reduced carbon emissions. The AA says with depreciation on new cars factored in, a petrol car selling below £12,000 will cost around £4,600 a year to run. On a State Pension, that would leave just £1281 a year for other expenses, like food.

So what size pension do you need to earn your desired income? Let's say you are a single person, hoping to secure a £10,000 annual income from an annuity with a five-year guarantee. This would require a pension pot of £165,289. Alternatively, if you're married and want to provide a 50% spouse benefit should your partner survive you, a £10,000 annual income with a five-year guarantee would require a pension fund of £181,488.

These are considerable sums, and serve to highlight the need to begin saving as early as possible, and to seek expert advice to find out how to make your money grow for a comfortable retirement.


Call 0800 304 7288 for a friendly chat about your pension

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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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