If planning for retirement is on your radar, follow our step-by-step guide to find out how much money you will need to retire and how much you could have.
Planning for retirement can feel complex and overwhelming. How long will your savings have to last and what sort of lifestyle would you like to enjoy? There is a lot to consider so it can be hard to feel confident that you’ve got the right plans in place. And the uncertainty caused by the pandemic may have complicated things further for you.
But just a little practical, emotional and financial preparation can go a long way to giving you peace of mind. It’s never too early or too late for retirement planning, so follow our step-by-step guide to get started.
Planning for retirement 101 – when would you like to retire?
Do you have a retirement age in mind?
It will help to know when your State Pension age is as that will form part of most people’s retirement plans.
Be sure to check if the retirement age you have in mind is the one on your pension plans and update this if it is different. This detail may seem unimportant but the age you have on your plan can affect investment choices the nearer you get to it. And remember if you’ve moved jobs a few times you may have more than one pension to keep up to date.
Also bear in mind that the age at which you can access money from a modern, flexible pension plan is currently 55 but this is due to rise to 57 from 2028.
Being clear about your retirement age and then working out the size of savings pot you’ll need before you’ll be comfortable leaving work behind can be really motivating.
How much money do you need to retire?
What sort of retirement lifestyle would you like to enjoy? Will your mortgage and other debts be paid off? Do you plan to travel and spend some of your hard-earned savings? How much money do you need to retire?
The answers to these and many other questions are very important when it comes to working out what you’ll need by way of an income every year. They’re also worth discussing with whoever you hope to spend your retirement with.
The Retirement Living Standards published by the Pensions and Lifetime Savings Association give a helpful starting point when retirement planning.
Minimum retirement income each year
Single people: £10,200
This amount “covers all your needs, with some left over for fun”. For example this would allow you to holiday in the UK and eat out about once a month.
Moderate retirement income each year
Single people: £20,200
For those hoping for a little more fun, these ‘moderate’ amounts are said to provide “more financial security and more flexibility”, in addition to the minimum income. You could have a two-week holiday in Europe and eat out a few times a month.
Comfortable retirement income each year
Single people: £33,000
For those wanting to occasionally push the boat out, the ‘comfortable’ levels mean that retirees could enjoy “more financial freedom and some luxuries”, like three weeks in Europe a year and up to £1,500 a year to spend on clothing.
Or, if you want to create a vision of your own ideal retirement and see how much that might cost you can try our retirement tool.
Work out how much you’ll have
When you have an idea of the kind of lifestyle you’d like and the income you’d need to pay for that, the next step is to see whether your savings can support this.
Starting with your pension pot you will need an accurate picture of where you are right now. Most modern pension plans let you check online any time if your savings are on track. To see how your Standard Life pension plan is doing you can log on or register.
You can see how much any pension plans could be worth when you come to retire by putting some basic details into our pension calculator, which will also take into account what you might expect from the State Pension.
At most, the State Pension will give you a bit less than £9,500 a year. This would mean you need nearly £11,000 more a year if you were aiming for the ‘moderate’ lifestyle outlined above. So this is where your personal and workplace pension plans and any other retirement income sources like ISAs or other investments come in.
You’ll find plenty more about what makes your pension plan such a good, tax-efficient way to save for retirement and how you can give it a boost on our Why save for retirement? pages.
Track down lost pots
Could you have a ‘lost’ pension? If you had a previous job (or jobs) that came with a pension plan, then there could be a pot of pension money waiting you. Our article about tracking down lost pension plans and what to think about when bringing pensions together can help.
If you don’t think you’ve got enough retirement savings – what can you do?
If your pension savings are smaller than you’d like and retirement is still some time off, don’t despair. The important thing is to face reality and make new plans now. Burying your head in the sand is not a good option.
For example, can you find a way to save more regularly each month into your pension plan or top it up? There’s so much helpful information online about saving, cutting costs and making extra income. Our article 7 tips for how you could grow your money could give you some ideas.
If your retirement date is getting close, could you delay it? The longer you can put it off, and avoid the need to tap into your pension savings, the higher the amount you could have in the future, though investments can go down as well as up and could be worth less than what was paid in.
Perhaps you could switch to part-time working after your retirement date until your pension pot is big enough? Or is downsizing your property an option? Or how about renting out a room?
The sooner you start to think about how you can retire with the lifestyle you want, the sooner you’ll be able to make it happen.
Think about the best way to use your pension pot
If you’re getting close to retirement, it’s time to start investigating how to make the best use of the savings in your pension pot. Will you take out your money in lump sums? Will you leave money invested during your retirement and take it flexibly as and when you need it (drawdown)? If you do that, what will you invest in? Will you convert it into a guaranteed income for life (annuity)?
This guide to Ways to take your pension money explains each option and gives you the key things to consider.
Check with your provider that your pension plan offers the options that you want and shop around and compare providers to find a deal that works for you.
If you are aged 50 or over the Pension Wise service, which is now part of MoneyHelper, offers free help with your pension and money choices. Or a chat with a professional financial adviser could put you on the right track, although there’s likely to be a cost for this. Find out more about how financial advice can help you manage your money before and during retirement on our Getting ready to retire page. If you don’t have an adviser already, you can find one at unbiased.co.uk.
That’s a lot of food for thought, so if you want a handy re-cap have a run through our Getting ready for retirement checklist.
The information here is based on our understanding in September 2021 and shouldn’t be taken as financial advice. We recommend you get appropriate guidance or advice before making any decisions about your pension plan. An adviser is likely to charge a fee.
Please remember that the value of investments, including pensions, can go down as well as up and could be worth less than what was paid in.
Tax rules and legislation can change. Tax treatment depends on your individual circumstances and where you live in the UK.