How Much Do I Need To Retire On?

Silver is the new grey. How can you maximise your retirement income to enjoy the lifestyle you’ve been working towards?

These days no-one’s planning to sink into an armchair with pipe and slippers – the current generation heading towards retirement has more energy, more appetite for life, and more spending power than ever:

  • According to 2015 research from the Centre for Economics and Business Research and Saga, Britain’s over-50s spent £320 billion a year – around 47 per cent of all UK consumer spending.
  • Holiday research by Saga shows that the over-50s are the biggest UK spenders on travel and tourism.
  • Over-65s outnumber young gym-junkies, according to research by Nuffield Health (which owns 77 gyms across the UK): over-65s are the most frequent users of all its clubs.

But do we need to invest more to enjoy the retirement we’re looking forward to?

What’s the average retirement income in the UK?

  • The average income of all pensioners in the UK in 2018/19 was £320 a week, or £16,600 a year

(That’s a government figure for how much the average British pensioner has to spend after tax, and after deducting the cost of housing and payments such as ongoing pension contributions.)

How does retirement income compare with earnings?

  • In 2019 Median earnings in the UK were £585 a week, or £30,400 a year

Obviously that’s heavily skewed by the kind of work you did, and where you live. But there is a substantial gap between before and after retirement income.

How does a British retirement income compare with Europeans?

Sitting poolside on holiday, are we the ones always saying “no thanks” to starters, and buying the screw-top wine?

If you look at just mandatory public and private pensions:

  • The average UK retiree will be getting 29% of what they were earning
  • Germans receive 51%
  • French receive 75%
  • Spaniards receive 82%

But when you include top-ups from voluntary pensions:

  • Britons receive 62% of what they were earning
  • Germans receive 65%…
  • French receive 75%
  • Spaniards receive 82%

Where do UK retirees get their income from?

  • More than 2 out of 3 pensioners (69%) received income from private pensions in 2018/19 – a significant increase compared with 25 years previously.
  • 61% of pensioners were getting income from investments in 2018/19 – down from 70% in 2009/10.
  • 16% of pensioners are still working and earning past retirement age: up from 11% 25 years earlier, but a slight drop from 19% in 2009/10.

(Figures from the UK Department for Work & Pensions)

How much state pension will I get?

It’s now very straightforward to find out how much your own UK government pension will be, when you’re eligible for it, and how you could increase it.

Check your state pension forecast

How much do I need for a comfortable retirement?

The “70% rule” is widely used – working on the assumption that you will need roughly 70% of your previous earnings to maintain your lifestyle when you retire.

So if you were previously earning £40,000 a year you’ll need a retirement income of about £28,000.

But if you want to enjoy some luxuries, such as a weekly dinner or drinks out with friends, a show once a month, shopping trips, winter sun holidays, upgrading your car every five years, and home improvements, one retirement income planning tool estimates that you’ll need more than £33,000 a year.

What can I do to boost my retirement income?

There are plenty of discouraging forecasts about how we’re not saving enough for retirement.

But you can still improve your own pension prospects, making use of as much (or as little) as you have, by taking action now:

Check out pension services and transfer options

Pension Services:

Compare pension services for self invested pensions (SIPPs)  where you can pull your existing pension plans into one place.
Lost track of old pension plans? Service for tracking down plans from previous employments.
Annuity service if you are looking to buy a guaranteed income from your pension pot.

Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of pensions is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

* Details of how the Financial Services Compensation Scheme applies to investment firms can be found at fscs.org.uk.

Written by Jennifer Stevenson ,
15th October 2020