Cost of living crisis

How much money will you need to retire? And ways to save for it

6 min read 30 May 23

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Research shows many people’s expectations of retirement aren’t supported by their financial circumstances - but what’s the solution?

What do most people think their retirement will be like when work is either finished or part-time? Will it be filled with travel, hobbies and an active social life? And will there be enough income left to help out family or other loved ones, if that’s what you’d like to do?

But how realistic are these kinds of expectations? Having more free time is one thing, but having enough money to do some, or all, of these things could be harder to achieve.

How much money is likely to be enough?

Research carried out by The Wisdom Council in association with M&G*, January 2023, shows that, among people not yet retired, just over a quarter (26%) expect their income will be more, or roughly the same, in retirement. However, almost half (43%) believe their outgoings will be greater or about the same.

What this shows is a worrying gap between how much money people think they’ll have coming in and what money they’ll have going out.

Retired people spend half their money, day-to-day

The ‘gap’ is further highlighted by the same research* into the experiences of those who are already fully retired. Just over half of those surveyed said their income is spent on day-to-day living expenses, with a small amount (17%) for luxuries and treats, and slightly less (13%) to cover emergency expenses – which could be anything from fixing the central heating to car repairs, or unexpected vet bills for a much-loved pet. A similar amount (15%) is left for saving.

Time to be realistic

With day-to-day costs going up, more of people’s living expenses are being taken up by the essentials, like food and heating. All those wonderful, fun things people want to experience and do when they retire could slip further out of reach.

Be aware of how much money you might need

It doesn’t have to be that way. With preparation and some realistic expectations, there are ways to save for the kind of retirement you want, starting with being aware of how much you might need each year.

The Pensions and Lifetime Savings Association (PLSA) has put together some useful ideas:

Minimum level: £12,800 a year could cover all your basic needs, with a little left over for fun, based on not having a car, holidaying in the UK and spending £54 a week on food.
Moderate: £23,300 a year could offer a more secure level of income, with a three-year-old car and a two-week European holiday – and enough left to hire decorators as opposed to DIY, for example.
Comfortable: £37,300 a year will fund a two-year old car, the replacement of a kitchen every 10-15 years, £144 a week on food and three weeks’ holiday in Europe, with almost triple the amount available to spend on birthday presents than someone on the minimum income level.

These figures are based on a single person living outside London and are for illustration purposes only – you can find out what a couple might need on the PLSA website.

Prepare and save for the retirement you want

Understanding how much money might be needed is a great way to start, but the next step has to be to act on it. Leaving it all to chance in the hope that things will sort themselves out is unlikely to give anyone the best outcome.

Paying into a pension can be a very tax-efficient way to save; however, the key is to save regularly and ideally start early – although it’s never too late.
Money in retirement can come from savings, equity release, part-time work and sometimes an inheritance as well as any company pensions you may have, with the State Pension later on.
Have realistic expectations. Will you need £10,000 a year or £40,000 a year for the retirement you have in mind? Check the Pension and Lifetime Savings Association website for what a basic, moderate or comfortable income looks like.
A financial adviser can help you prepare for the retirement you want and help to create a plan and recommend ways to achieve your financial goals.
Review your pension and other savings regularly to keep them on track. If they’re not, a financial adviser can help you look at ways to improve or make the most of them.

Why not take the opportunity to think about your retirement plans today so that you can have the best chance of the retirement you want? If you haven’t already got a financial adviser and would like to speak to someone, you can find a financial adviser here

* Source: The Great Retirement report by The Wisdom Council, in association with M&G, Jan 2023