8 min read

How much do you need to save for retirement?

Have you ever thought about how much time you will actually spend retired? Start thinking about it, and your thoughts quickly turn to wondering how much you need to save for life after work…

Elderly couple enjoying lunch together

How long will I be retired for?

The average time we spend retired is now 17 years. When people of working age were asked how much they thought they would need for each year of retirement, the average was just shy of £30,000. Multiply this by 17 years and it adds up to over half a million pounds, a substantial sum by anyone’s standards.

And while that doesn’t take into account a reduction in costs – if you’ve paid off your mortgage, or stopped commuting, for example – it is income that you currently rely on for your everyday lifestyle.

Can I afford the retirement I want?

Many people have big plans for when they finish work. Travelling the world, buying a second home abroad or taking up a new hobby they’ve never previously had the time for – people have high hopes of retirement.

These changes are clearly for the better, but they also bring challenges about how to fund retirement when the monthly wage stops.

Is the state pension enough to fund retirement?

The short answer is, no. But the good news is that the state pension will pay on average £140,000.

Of course, this still means that by the time someone reaches retirement age they will have needed to save £360,000. The truth is that on average workers 55 and over will have saved closer to £80,000.

So what’s the best way of saving for retirement to fund this shortfall?

Downsizing could release equity

One option is to consider downsizing. Many people in their 60s remain in the family home even when the kids have long moved out and set up on their own. With house prices having risen dramatically in recent years, downsizing to a smaller property means retirees can access the equity they have in their home.

However, there are alternatives to downsizing – such as a lifetime mortgage.

Saving for retirement with a Lifetime ISA

The launch of the Lifetime ISA in April 2017 also presents another option for savers; offering a means to invest money to use for the purchase of a first home, or critically, to help save for retirement.

It’s important to remember, however, that you should not rely on a Lifetime ISA alone to fund your retirement – it’s just a means to help save for it.

How a Lifetime ISA works

Allowing you to invest up to £4,000 a year, a Lifetime ISA encourages you to put money away until you retire in exchange for a 25% government bonus; as long as you don’t choose to withdraw the money before you turn 60. That means if you max out your £4,000 a year limit, you could top it up with an additional £1,000 government bonus each year, completely free. And over time, that could build a tidy nest egg to help with retirement.

Just remember that a Lifetime ISA is an investment, which means your money will be subject to changes in interest rates over time. And this could mean that you get out less than you put in.

Take advantage of the pension freedoms

Since the pension freedoms introduced in 2015, retirees have much more choice about how they pay for the later years of life.

More often than not they are taking a blended approach whereby they use their pension to pay for the essentials through an annuity, and use their property or other investments to pay for the pleasures in life. So it’s important to take a look at the options available to you, and speaking to a financial adviser.

Whatever choice retirees take, people of working age should ensure they are putting something away regularly for their retirement so they don’t have a shortfall when it’s time to take life a little easier.


Written by Emma Banks

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.