You may have a great many years left until you can retire but it’s never too early to think about saving up and preparing for that milestone. After working most of your life, you deserve to look forward to the days ahead where you can make the most of those free hours and do all the things you’ve ever dreamed of.
With this in mind, you may be wondering how much you need to retire and live comfortably. There is no simple answer or figure, the amount you need depends entirely on the type of lifestyle you wish to enjoy and how you go about saving in the run-up to your retirement day.
What do I need to pay for when I retire?
You’ll still have a range of essential costs to consider when you finish work but, hopefully, expenses such as your mortgage and the cost to commute will be gone.
Here’s what you’ll need to account for in your retirement budget:
- Utilities (gas, water and electric)
- Buildings and content insurance
- Prescriptions and medicine
- Transport and holidays
- House maintenance
The cost of living is likely to go up between now and when you retire but consider your current budget, how much do you spend on the necessities and additional treats? It’s unlikely when you retire you’ll want to completely change your spending habits so these need to be factored into your workings.
How much do I need to retire?
If you don’t intend on jetting off on five-star holidays or indulging at the weekends in Michelin star restaurants, perhaps all you need to think about when it comes to saving for retirement is the essential costs.
Which? has conducted research into retiree spending and discovered that to cover the essentials most couples spent just under £18,000 per year. This covered costs such as groceries (£2,193), transport (£1,696) and utility bills (£1,704).
For those looking for a more comfortable way of living – with European holidays and expenses for household goods considered – a pension pot of around £27,000 is required. In terms of spending, this is likely made up of European holidays (£3,490), tobacco and alcohol (£790) and recreation and leisure costs (£1,295) on top of the essentials.
If you’re looking to spend your hard-earned cash on a more luxurious lifestyle, Which? found that couples indulging in long haul holidays (£6,539), new cars (£4,229) and leisure memberships (£1,150) on top of everyday expenses spent around £42,000 per year.
The Pensions and Lifetime Savings Association confirm this data from Which? as they suggest individuals need at least £10,200 saved for a lifestyle where only essentials are purchased, £20,200 for a moderate lifestyle and £33,000 for a comfortable lifestyle with more financial freedom.
Your age is a factor
The amount you put away in the run-up to your retirement will also be determined by your age. The older you are when you start your pension pot, the more you’ll need to move to be saved, if you’re starting in your 20s you can get away with saving a little less and building it up over a long period of time.
For example, according to Which?’s data, couples who don’t have any savings need to put away £271 per month in their 20s, £352 in their 30s, £489 in their 40s and £824 in their 50s to build up a comfortable pension pot of £100,000.
Will the state pension cover my retirement?
It’s unlikely the state pension alone will cover all of your costs when you retire if you’re looking to go on holiday or have planned renovation work on the house.
As of April 2020, individuals receiving the full New State Pension will receive £175.18 per week. This means they’ll receive £9,109 in total each year. As a couple, this means you’ll have £18,218 coming in each year.
It’s important you also contribute to your pension pot, to ensure you can cover the essentials alone when you retire – of course, this figure changes annually so it’s important you keep an eye on this.
How to work out how much you need to save for retirement
Age UK has a great calculator on their website that you can use. Input what you expect to spend and how much you’re currently putting away, then the calculator will confirm if you’re on track or not. It’s a good way to measure your progress so far and ensure you’re putting enough away as early as possible.
You can also check how much State Pension you are likely to receive on the Government website, to work out how much extra you may need to put away into your workplace pension or private fund.
It pays to start saving for retirement as soon as possible. The more you can put away now, the more comfortable you’ll be in the distant future. Take on this guidance, don’t delay and ensure you’re covered for the future.