How much money do I need to save for my retirement?
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While you might not be thinking about retirement just yet, the earlier you start managing your money and topping up your pension pot, the greater peace of mind you’ll have later in life.
Zoe Till, senior associate and chartered financial planner at Nelsons, answers some commonly asked questions about saving for retirement.
Q: How much money do I need for my retirement?
A: This varies from person to person and will depend on the type of lifestyle you want. In 2020, Which? carried out a survey and found that a retired couple spent on average £17,000 a year to cover basic living costs, such as food, household bills, transport, healthcare and clothes. For a comfortable retirement, which included all the basics as well as some extras such as short-haul holidays, hobbies, and going to restaurants, the amount increased to £25,000. For those who had a higher standard of living during retirement with luxuries such as holidays to long-haul destinations and new cars, £40,000 per year was the average expenditure.
It’s also worth bearing in mind that your spending will fluctuate as your needs and wishes change. For example, spending money on holidays may be a priority at the start of your retirement, while the cost of healthcare and insurance is likely to increase as you get older.
Q: How much will I get in my state pension?
A: The government state pension is the main source of income for most retirees, which can be accessed at the age of 66 (increasing to 67 by 2028). The maximum state pension is £179.60 per week – for a couple who is entitled to the maximum amount, this equates to over £18,000 a year. To find out how much you could be entitled to, visit the government's website to get a pension forecast.
Q: What other sources of income are available during retirement?
A: You may also have additional income from savings, investments or a workplace pension, including final salary and money purchase pensions. Final salary pensions are based on your yearly income while you were working and how long you were employed for. Money purchase pensions are based on the amount of money paid into the scheme and for how long, as well as the investment return.
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The majority of people choose to withdraw from money purchase pensions through income drawdown or an annuity. An annuity gives you an income for life, or you can choose to go into income drawdown where you can take from the pot as and when you like – although this comes with the risk of withdrawing too much, too soon and running out of money.
Q: When should I start saving?
A: Although everyone will have different requirements during retirement, generally speaking, the earlier you start saving the better as you will have to save less as you get older. Many people will already be saving for their retirement with a workplace pension through auto-enrolment (if you are aged over 22 and earn more than £10,000 a year) and your salary is also likely to increase as you get older.
Our investment management team will take your individual circumstances into account to help you plan for retirement and make sure you are on track to retire at the age you want. We can help you to manage your money and advise you on the best sources of income to help you achieve your long-term goals.
For further information, contact Zoe on 0800 0241 976 or fill out the online form at nelsonslaw.co.uk.