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

Many people across the United Kingdom share a dream of retiring at 60 or even earlier. After all, the idea of being able to fully enjoy your life while you’re healthy and fit, with time that is completely your own, is a welcome one, but only if you have enough money to appreciate it.

Having the peace of mind to be free from financial worries is an enviable position that may strive towards for their retirement. Being able to spend more time with family and friends or enjoy new experiences like travel or pastimes are all reasons people look forward to retirement, but ensuring adequate provisions in place is key.

In the following sections, we’ll explore how to assess how much money you might need in retirement, where these funds come from, and some of the different options you can choose to ensure you’ll have access to the income you need when you stop working.

If you’re now seeking to retire at 60 or earlier, read on for the answers to many commonly asked questions, and make sure you’re in the best position possible to make the most of your retirement.

What size of pension pot do you need to retire?

When planning retirement, pensions are an important factor. A pension pot is made up of the contributions your employer and you have made and saved for your eventual retirement. This pot also includes capital growth that may have been earned from this fund’s investment, depending on the type of pension scheme established.

Here in the UK, the average pension pot is typically around £50,000. While this sum will be used for your retirement, it won’t give you an accurate picture of how much you need to retire. You will need to consider not just your pensions, but also any investments and savings you have made.

You’ll also need to include any additional income you’re likely to receive, such as state pension or final salary pension. To find out how much income you’ll require in retirement, you’ll also need to decide the type of lifestyle you want to have when you’re no longer working.

How much money is required to retire at age 60?

As a rule, you will need approximately 20 to 25 times your expenses for retirement. This means that if you spend around £30,000 every year, you will need between £600,000 and £750,000 worth of funds made up of pensions, savings, and investments.

However, it’s worth noting that most people in retirement will receive some kind of income whether it’s a final salary pension, a state pension, rental income, or another source entirely. This income can then be deducted from the total funds you’ll require annually.

For example, if you will spend about £30,000 each year and receive £8,000 from a state pension and £12,000 from renting a property, the amount of money you’ll need for each year in retirement is reduced to £10,000.

How much income will you require to retire?

Exactly how much you’ll need to retire will always depend on the amount of money you wish to spend during your retirement.

The easiest way to calculate your retirement income is to look at how much you spend now.

If you currently receive about £3,000 each month and typically have about £1,000 left over each month, your expenses are likely about £2,000 a month. Now that you know what you’re spending today, you can look at how this will change when you are no longer working.

For example, you might be spending less money on travelling to work but spending more on holidays and travel for personal reasons. You will have more time on your hands, which can lead to additional expenses, or you may even wish to make a large purchase like buying a new car.

If you are unsure what you might spend, the easiest method to use is to stick with the 70% rule. This indicates that an average UK retiree will require around 70% of their standard working income. For example, if you now earn £3,000 each month, you’ll likely need a retirement income of around £2,100 every month.

Where will the income for your retirement come from?

Once you’ve worked out what you’re likely to spend in your retirement, you’ll need to work out where this income will come from. Your retirement income will come from two sources: capital, and income.

Income is money paid into your personal bank account each month during your retirement. This includes your state pension, final salary pensions, rental income, dividends, and any interest paid on savings. If you’re not sure what the size of state pension that you’ll receive is, you can find estimates online.

Remember that different types of income will begin at different times. For example, if you’d like to retire at 60 or younger, you won’t receive your state pension until you are 66 or 67, and any salary pensions may not be payable until you reach 65.

Capital comprises funds you have saved up over time. This will include investments, savings, and any pensions you have paid into. You’ll be able to withdraw some of this capital either monthly or annually to help top up your income in retirement. However, you must be cautious. Should you withdraw too much of your capital, you may put yourself at risk of running out of funds. If your plan is to retire at age 60, you’ll typically be able to withdraw approximately 4% of your capital every year.

Are you already in a position to retire?

If you’ve looked at your income and capital and discover you already have enough to retire, you’ll have a decision on your hands that only you can make. If you have saved carefully, spent modestly and worked hard, you may well find you have enough capital and income to retire early. Whether you wish to spend more time enjoying retirement or making the most of your extra working years to accumulate further funds to pass on to your family, or enjoy a more luxurious retirement, will be up to you.

What if you don’t have enough income and capital to retire?

If you find that you don’t have enough funds for retirement, don’t panic. There are multiple methods open to people that help them increase the size of their retirement pot. These include delaying your retirement by a few years, saving a little extra every year or simply spending less. You can also look into obtaining a better return on your investments or taking any final salary pensions you’re owed at an earlier date.

Is it possible to retire at 60 and never run out of money?

If you wish to retire at age 60 with guaranteed peace of mind that you will never run short of money, you will need to buy an annuity. Annuities essentially provide people with an income that is guaranteed for the rest of their life, and is the only option that ensures you that your income will continue indefinitely.

The only problem is that a pension annuity will provide only a small income. This means that you will require a large pension pot to achieve this.

An alternative to annuities is to drawdown an income flexibly from your accumulated pension pot. This approach enables you to withdraw as little or as much money as you wish, whenever you want. However, this method is not without risks – should you take out too much, you’ll reduce the size of your pension.

Working with a professional financial advisor can be useful in such circumstances. Advisors can conduct routine reviews of your pension and ensure you never run out of funds in retirement.

Which is the better option – annuity or drawdown?

An annuity will provide a guaranteed income for your retired life. The income that you will receive will either stay the same or may increase in time in line with annual inflation.

The key advantage of purchasing an annuity is the security and certainty it can provide, safe in the knowledge that you’ll be receiving an income for the rest of your life.

The key drawback of buying an annuity, however, is the low income it delivers. If you opt to use your pension worth £200,000 to buy an annuity at age 60, you’ll only receive £4,848 each year. This assumes that the purchased annuity will increase every year and pays an income to your spouse should you die.

The alternative option is income drawdown. This approach means that your pension pot remains invested, and you withdraw funds as and when required. Perhaps the key advantage of drawdown pensions is that you will have more flexibility and total control of the money you receive. You can select to take as much or as little as you would like, whenever you wish to.

The main downside of drawdown pensions is that if should you withdraw too much from your pension, you can quickly run out of funds. Look at drawdown pensions as being a bit like a personal bank account. When you withdraw too much money and it is not being replaced, eventually you will have none left.

How do you decide what the best option is?

Ultimately, whether selecting a drawdown pension or an annuity as the best choice will depend on your specific circumstances.

Should you find you already have income enough to provide for your basic requirements like food and bills, drawdown pensions may be a suitable option. They can effectively top-up the income you receive, providing additional spending money for leisure and holidays. Should you spend all of your drawdown pension, you will always have enough funds to cover these basics needs.

However, if you do not have an income that covers your basic requirements, an annuity may have advantages. Using an annuity, you can be sure that the essentials will always be covered.

For most people, a combination of the two approaches can also work as an effective solution.

How do you effectively plan for your retirement?

People in the UK are now living longer, often remaining healthier and more active, able to enjoy their retirement to the full. To make sure that you can appreciate all that extra time you’ll have available, putting a plan in place for your retirement is vital.

Put simply, your retirement plan is made up of your income and capital, but as you can see, there are many factors that can impact this and numerous options you can select to improve your access to funds. All of these elements are also governed by the standard of living you wish to have in retirement and any personal goals you wish to achieve.

Everyone’s personal and financial situation are as individual as they are, so there is no one-size-fits-all answer to how much money you’ll need for retirement. This is where an independent financial advisor can help. Retirement planning services are designed for this sole purpose and can help people make sure they have appropriate provisions in position by the time they cease working. Professional retirement planning can make sure that your income and capital are working a little harder to enhance your nest egg. A personal financial advisor will also tailor your plan to make sure it not only answers your basic retirement requirements, but helps you spend your newly available time the way you want to, with no financial concerns.

Experts in retirement planning

If you’re seeking retirement planning specialists in Chester or Shropshire, you can depend on our dedicated team at Hartey Wealth Management for support.

In step one of our process, we look at the pre-retirement stage. This involves building up adequate assets before you retire with a varied portfolio. In the post-retirement stage, we then align your assets, ensuring they provide sufficient income security and capital for you.

Get in touch today and our experienced team of independent financial advisors will assess your available options, providing expert advice on the best suited retirement options for your personal circumstances.


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