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How Much Money do You Need to Retire?

It often feels like retirement is something many people dream of from the moment they start working. What some struggle with is exactly how much they need to save and the best way to go about doing so to enjoy the lifestyle they want during retirement.


This does not constitute advice and advice should be sought in all instances before acting on it.


After over forty years of working 8 plus hours a day, five days a week, year after year, who can blame those who are looking forward to a life after work? Suddenly, your whole world opens up — you can travel, take up new hobbies or revisit old ones, spend more time with your loved ones — anything your heart desires, really. Achieving such a long term goal takes careful planning and dedication, which many individuals understand.


Planning for retirement

Determining how much you’ll need for retirement depends on a variety of factors. Deciding what age you’d like to stop working will also dictate roughly how many years of retirement you’ll need to consider saving for.

Of course, this is not an exact science, with life expectancy increasing every year, so it’s always advisable to be optimistic and over-save rather than run the risk of running out of money before your time is up. From there, you’ll be able to work out an estimate monthly income and of course, figure out the sources of said income. When building your plan, you’ll need to consider your attitude toward risk (and when you can afford to be more aggressive versus when to be cautious), inflation, and of course, diversification.



The magic number

Which? conducted a comprehensive research study of its retired and semi-retired members in 2018 and found there are two bands of retirees – “comfortable” and “luxurious.”

It’s no surprise that the category retirees spend the most money in is European travel and holidays — just under £4,500 a year across the board. Those who aspire to a more luxurious lifestyle add over £7,000 a year on long haul holidays as well!

Jet-setting aside, the average retired couple spends about £17,000 per year on basic expenses — house payments, insurance, transport, utilities, household goods, clothes, etc. Adding in some luxuries like holidays, hobbies, and the occasional new car, couples living a comfortable lifestyle can expect to spend £26,000 per year, while a more extravagant lifestyle could cost around £39,000 a year.

The average retirement age in the UK is 65, while the average life expectancy is about 80 years old for men and 83 for women. Being generous, you could use 20 years of retirement as the basis for your calculations and expect to need a total of £520,000 to live comfortably and £780,000 for you and your partner to live luxuriously.

Looking at these big numbers might seem scary, so let’s take a step back and use our annual cost of living numbers for planning.


How to get there

The bulk of your retirement funds will come from your pension pot – this includes:

  • your state pension and
  • private or workplace pensions.

On top of this, you might have supplemental income from investments and property to help you fill the gap or bump you from a comfortable retiree to a luxurious one.

The rules for collecting state pensions differ based on when you qualify (before or on/after 6 April 2016).

As of April 2018, the average man can expect a state pension of £7,895/year and the average woman can expect £7,480/year.

A straight male/female couple combined will bring home £15,375 per year while a male/male couple can look forward to slightly more and a female/female couple will, unfortunately, be collecting slightly less.


Plugging the gap

Any way you look at it, there’s a gap of approximately £11,000 that needs to be made up for with private and workplace pensions. And to live a bit more extravagantly, your other investments will need to bridge a gap of more than twice that amount, making your retirement plans all the more important.


Further information

This is only scratching the surface of retirement planning as there is so much to think about that could affect your future. Life after work, the latest ESMARTMONEY (ESM) issue delves into all these factors and some you may not have even considered before.

ESM is an invaluable resource available to download for free on the Dental & Medical Financial Services site that covers a wide range of financial topics — from Brexit to pensions and everything in between —  one of which is sure to strike your fancy.


Need help planning for retirement?
Investments | Financial Planning | Retirement | Save Tax | Protection |

Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
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