How much money do I need for retirement? (2024)

It's tricky to know how much money you need to retire and live a lifestyle you're happy with.

While the amount will vary from person to person, we've put together some rough estimates of how much you need to retireand the questions you should ask to help you achieve a good income in retirement.

How much annual income do I need to retire?

There's no minimum retirement income,and how much you'll need to budgetwill depend greatly on your lifestyle.

Someone who plans to travel the world in retirement and dine out regularly will need more money thana retiree who enjoys cooking at home and exploring theirlocal countryside.

To givepeoplean idea about how much income theymightneedin retirement,Which?has done some sums, which account for three different lifestyles.

We can't stress enough these are rough estimates, but they should give you an idea about what you should be aiming for.

To fund a basic lifestyle, where all essentials like groceries and bills are covered, but there's little budget for the simplest ofstaycations, you'll need an income of roughly £13,000 per year for a single person. If you're living with someone else, you'll need £19,000 between you.

If you'd prefer a'comfortable'lifestyle, which gives you a little extra for short-haul breaks, leisure activities, gifts and alcohol, you'll need £20,000, or £28,000 per yearfor two.

And to fund a luxury retirement, where you're free to embark on long-haul trips, buy a new car every five years, and live life to the fullest, you'll need £32,000 for one or £44,000 for a couple.

How can I work out my retirement income budget?

Below are some questions to ask yourself or discuss with a financial adviser.

• What is the minimum income I need to cover my outgoings?Consider everything from your mortgage or rent payments and utility bills, which will likely rise if youspendmore time at home,to transport and grocery shopping. These are thebasicsyou need to be able to comfortably cover in retirement.

• How much would I like to be able to spend on non-essentials?Whether you want to travel, dine outa bit or take the grandchildren for days out, it's important to plan for non-essential spending, too.

• Am I entitled to state benefits?As long asyou've made 35 years of national insurance (NI) contributions, eitherthrough work or by claiming certain benefits, you'll be entitled toclaimastate pension.The maximum amount you can receive is £221.20per week, adding up to around £11,500a yearper person, which is below the essential level of income if it's your way to funding your retirement.

• How much am Isaving, or can I save towards retirement?It's best to start saving for retirement as early as you can.Whether you've already started or want tobegin buildingyour pension pots,tools likeUnbiased'spension calculatorwork out how far your money will go.

If you'd like more information on when you can retire, check out our previous article onretirement age.

How much should my pension pot be worth?

This is a personal question that will depend on the lifestyle you'd like to have in retirement.

The sum will also depend on what you're planning on doing with it.

For example, you could save a significant pension pot and siphon it off slowly using pension drawdown, allowing the fund to continue growing, but as with any investment, this is not guaranteed.

You could purchase an annuity, giving you a set income every year.

Using the estimates from Which? you would need a pension pot worth around £757,000 to buy an income of £41,000 a year.

You could enjoy the same lifestyle through income drawdown with £442,020 saved, but this is a riskier option with no guaranteed income at all.

Learn more: how long will my pension last?

Whataremy retirement income options?

You need to understandyour options well before your retirement.

There isn't a one-size-fits-all solution, so you must discuss your plan with an independent financial adviser before taking any action that could put your money at risk.

Below are some of the most commonoptionsworth discussing with an expert.

• Pension drawdown:Drawdown allows you toregularly withdraw income from your pension while allowing the rest of your fund to growthrough investments. There will always be a level of risk, meaning you could lose everything if thestock market falls.

• Annuity:This is an insuranceproductthat guarantees you a certain income every year for the rest of your life. The amount you receive will vary depending on your health, how old you are when you buy an annuity and how much income you'd like to receive. It's a safe, reliable option but won't give your money the chance to continue growing through investment.

• Withdrawing a lump sum:Some pensioners prefer to take a lump sum,which you can do from 55. They might choose topay off their mortgage, reduce their outgoings, orgifttheirchildren witha house deposit. You can take up to 25% of your pension tax-free,leaving the rest to continue growing or to go towards an annuitylater.

Defined benefit vs defined contribution pensions

One key thing to understand is whether the pension(s) you contribute to are defined benefit (DB) or defined contribution (DC).

A defined benefit, or a final salary pension, is rare nowadays and is generally only offered by large public sector employers.

It guarantees you a set income for your retirement, either based on the average amount you've earned over your career or the salary you earned just before retirement.

If you have a defined benefit pension,you won't beallowed to cash it in. That's because you essentially have a'benefit'with the money that's gone into the fund rather than having a pension that actsasa long-term savings account.Instead, you'll receive a set amount of income.

Mostprivate and workplace pensions are defined contribution, where you pay into a pension pot and use it to buy an annuity, pension drawdown or access a tax-free lump sum.

How much do I need to semi-retire?

Semi-retirement is a sensiblesteppingstoneformanypeople who aren't quite ready to fully retire, either mentally or financially.

You'll be able to adjust to having more free time graduallyand cansupplement your state and private pension income with a salary.

Before you rush into semi-retirement, you must ensure it's a realistic prospect.

If you resign from your job without consideringfrustrating hurdles,like candidates over 40 are less likely to get a job offer,you could be on the road to serious financial difficulty.

If you're aiming for a comfortable income and live alone, you'll need to ensure the amount you can claim from state or private pensions (or both)and what you earn adds up to around £20,000.

Part-time or reduced working hours

Some workplaces will allow older staff to reduce their hours, either through job sharing (where one full-time role is covered by two part-timestaff, with the salary being distributed pro-rata) or by moving into a similar part-time role.

For example, skilled professionals could move into consultancy or work on a freelance basis, which would give them control overtheir free time.

If that's not possible, some people take on a new part-time role instead.Secure a new job before leaving your current position, especially if you cannot afford to retire completely, to ensure you'll remain financially comfortable.

Remember, every year you're retired means another year without contributing toyour pot and depleting the funds you've worked hard to build up.

Don't leap unless you're sure there's the safety net of another role waiting.

Volunteering

Volunteering is a great option if you're financially comfortable but worry about having nothing to do in retirement.

Volunteering is unpaid, meaning it won't do anything to supplement your retirement income. However, you might enjoy non-monetary perksin your rolethat reduce your outgoings a little.

If you're volunteering with a local school or community project, you could be offered free refreshmentsor transport.

And if your volunteering activity is something you'd happily pay to do as a hobby,or if you choose to volunteer abroad, you could save money on membership fees and some of your travel costs.

Using investments to fund retirement

You may also be able to semi-retire thanks to relatively reliable returns from assets such as property.

It's a great option if you're not eligible for or don't want to claim your pension or want to give up workcompletelywithout dipping into your retirement fund.

Not sure what the right option is for you? Find a financial adviser you can trust via Unbiased.