It’s hard to know exactly how much you’ll need in later life because everyone has different circumstances and expectations.
But by planning how much you’ll need and working out how best to build up your pension pot, you'll be in a great position to live your best life in later life.
Take the quick quiz in our retirement calculator to work out which retirement lifestyle would suit you best.
People have different ideas of how they might live when they’ve finished working.
The Pensions and Lifetime Savings Association (PLSA) broadly categorises these into 3 retirement living standards, based on questions like how many holidays do you see yourself taking a year? Would you have a car? If so, how often would you want to replace it? And how much home maintenance do you think you’ll need to do? The answers steer you towards one of the 3 living standards:
When it comes to working out the retirement income you’ll need, it’s easy to make the mistake of basing the figure on your salary while working. So, you’re likely to think you need more to live on than you actually do.
Bear in mind your living costs will probably change in later life – often significantly.
People tend to spend less on housing costs, such as mortgages but more on things like heating bills, healthcare and insurance. Commuting costs may also go down if you decide to retire from work.
However, you’re likely to have more time for things like travel or hobbies which can increase your outgoings. So, it’s important to know how much you’ll need, to live the lifestyle you’ve envisaged for yourself.
Research from the PLSA, in conjunction with Loughborough University, suggests that retired couples living outside of London will need to spend about £43,000 a year to achieve what they call a ‘moderate’ lifestyle.
To achieve a ‘comfortable’ lifestyle, one that allows you to be more spontaneous with your money, a couple would need a figure closer to £59,000 a year.
Our nifty retirement calculator will show you the projected income you’ll need based on the lifestyle you’d like to have in retirement.
Here’s a quick way of calculating how much to save: at the time you start saving for your pension, halve your age, then use that number as the percentage of your salary you should aim to save each year.
Many experts recommend this rule of thumb. It would mean that if you start at 20, you should aim to save 10% of your annual income towards your pension. If you start when you turn 30, this will rise to 15%, and so on.
For most people, your pension income will come from 3 sources:
Our retirement calculator helps you work out your projected retirement income. It’s based on the State Pension you’ll likely receive, the current value of your pension pot and the total amount you’re contributing each month.
It will also tell you if you’re on target to achieve the lifestyle you’d like in retirement. Plus, you can play around with the results to see what difference it would make if you saved more each month or worked longer.
If you find that you aren’t saving enough – which isn’t unusual – we have some useful tips on what to do if you haven’t saved enough for retirement.
