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How much money do you need to retire?

Written by Ines Pena, Digital Content Executive

When it comes to saving for retirement, it’s important that you understand your options, make a solid plan and stay on top of your savings.

When you stop working full time, the money you’ve put aside over the years will be all, or most, of your income.

It can be tricky to figure out just how much you need to have saved before you can retire, as this amount will be different for everyone and depend on personal circumstances and on the kind of retirement lifestyle you want.

How much money should you save for retirement?

There are two general rules to help you figure out roughly how much you’ll need to save in order to retire:

  • Have 4x your salary saved by 45, 8x your salary saved by 60.
  • 15% of your pre-tax pay should go towards retirement savings.

This is just a guideline and will change slightly depending on your situation, for example the sort of lifestyle you intend to have after you retire.

Of course if you have any retirement goals, such as travelling or doing extensive work in your home, you’ll need to save more.

Rule 1) Have 4x your salary saved by 45, 8x your salary saved by 60

The general rule-of-thumb is that you should have four times your annual pre-tax salary saved up by the time you’re 45, going up to eight times your salary by the age of 60.

This is so you can have around two thirds of the income you had when working full-time, which should be enough to let you maintain the same lifestyle, as you won’t be spending as much.

For example, you won’t be paying National Insurance, any children who might have been financially dependent on you are likely to be in the workforce by then, and you won’t be paying into your pension savings anymore. This rule also assumes that you own your own home by the time you retire, so you wouldn’t be making rent or mortgage payments.

Here’s an example of what this rule might look like.

Salary How much you should have saved by age 45 How much you should have saved by age 60
£50,000 £200,000 £400,000
£40,000 £160,000 £320,000
£30,000 £120,000 £240,000

Rule 2) 15% of your pre-tax pay should go towards retirement savings

Several financial experts say you should save 15% of your annual pre-tax salary each year for retirement. If you’re currently on a salary of £30,000, for example, you should be putting away around £4,500 each year.

It’s worth noting that this figure includes your employer’s contribution, so if they’re putting in 3% then your contribution should be 12%. If you’re self-employed, you’ll have to put in the 15% yourself from your income.

This percentage is a general guideline to help you maintain your current lifestyle when you retire, as your contributions will scale with your salary.

The reason for this is because your lifestyle and spending habits tend to change as your income goes up or down. If you retire while on a salary of £60,000, you might have to make a few sacrifices to maintain your lifestyle if you’ve been putting money aside based on a lower salary.

Checking if you’re on track

It’s never too early to check how much you’re on track to get when you retire.

Everyone who has paid National Insurance in the UK for at least ten years is eligible to get a State Pension when they retire.

Currently, the government retirement age is 66, meaning this is when you'll be able to get your State Pension, but this is likely to change in the future. You can check at what age you’re likely to get your State Pension and how much you can expect to receive on the UK government website.

You'll also be able to access any private pensions that your employers have set up for you throughout your life or that you’ve set up for yourself at age 55. This age can change between types of pension, so it's worth it to check with your provider.

To find out how much you can expect to receive when you retire, you’ll need to have details of each pension pot set up in your name as these won’t all be in the same place (unless they are with the same provider).

How does your lifestyle affect how much you should save for retirement?

It can be helpful to check which retirement lifestyle tier you believe you’ll fall into according to the PLSA retirement standards. This will help you see how much money you’ll need to put aside now to reach the tier you’d like to be in.

Here is a short explanation of each tier and how much you should aim to put away to cover your expenses until age 90, assuming you retire at age 66.

What your spending looks like How much you'll need to save
Minimum lifestyle tier You eat out at affordable restaurants about once a month, holiday mostly in the UK and dedicate yourself to affordable hobbies.

You maintain your home yourself, your weekly food shop is around £41 a week and use mostly public transport.

If you’re single or living alone: £307,200

If you’re living with a partner:
£238,800 (each)

Moderate lifestyle tier You eat out a few times a month, travel abroad once a year and have more flexibility to do things you enjoy.

You can get some professional help with maintaining and decorating your home, you travel mostly by car and your weekly food shop is around £47.

If you’re single or living alone:

If you’re living with a partner:
£408,000 (each)

Comfortable lifestyle tier You go to restaurants several times a month, travel abroad a few times a year and spend more on weekly activities, such as going to the cinema.

You can get your home professionally maintained and decorated, own a newer car and your weekly food shop costs around £59.

If you’re single or living alone:

If you’re living with a partner:

How can my circumstances affect my retirement goals?

When following any savings rule, it’s important that you keep in mind your own individual circumstances.

These factors should be taken into account when you’re planning how much you’ll need in your retirement fund:

  • Whether you own your own home or will when you retire.
  • Whether you'll be living alone or with a partner.
  • How much you plan on helping family members.
  • Whether you're expecting to receive an inheritance.
  • Your own funeral costs.
  • Any benefits you might receive on top of your State Pension.

Benefits you could receive on top of your State Pension

These are some of the benefits you could be entitled to when you retire.

Whether or not you’re claiming benefits by the time you retire, it’s important that you check everything you might be eligible for, as some benefits aren’t automatically assigned and you might have to make a claim.

Specific goals for your retirement

Retirement is a great opportunity to accomplish lifelong goals and tick items off your bucket list, but this means you’ll need to have more money saved up.

It can therefore be a good idea to have savings pots that are separate to your pension.

You could put money into a lifetime ISA, for example, alongside your pensions.

You can put in up to £4,000 each tax year into a lifetime ISA and you’ll get a 25% government bonus on everything you invest. That’s a free £1,000 from the government each year to help you fund your travels, pay for home improvements or reach any other retirement goals you might have.

Lifetime ISAs also discourage you from dipping into your savings. If you take money out before you turn 60 (unless you use it to buy your first home), you’ll be charged a government withdrawal charge which is higher than the bonus you’ll have received.


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