How much do I need to retire?

31st October 2021

How much you need to save for retirement is, of course, largely dependent on how much you want to spend in retirement. This is a difficult question to answer because before you get to retirement how will you know how much you’ll spend. This is where data from a recent study by the Pension and Lifetime Savings Association (PLSA) might come in handy.

Annual cost of retirement

They have calculated the cost of retirement based on different standards of living; minimum, moderate and comfortable.

standards of retirement living














These numbers are based on a couple’s retirement spending needs, but PSLA also worked out the numbers for single people and declared £10,900 was needed for a minimum standard of living, £20,800 for moderate, and £33,600.

I will use the numbers for couples for the rest of this blog.

From my experience of dealing with the financial affairs of people in retirement, I don’t think these annual expenditure numbers are too far out. Within my ‘bubble of privilege’ I don’t see too many people living on the income required for the minimum standard of living, but I’m sure it’s possible. I also see people who spend a lot more than the income needed for a comfortable life.

One point I would make about these figures is that they assume expenditure remains constant throughout retirement. It is much more likely that expenditure starts high in the early years of retirement, falls in the later years, and spikes again at the end of life.

Although the PLSA study helps with how much might be spent each year in retirement, it misses a big part of the financial planning equation – where will the income come from?

Your retirement pot

State Pensions, though much-maligned, will cover a lot of the spending requirements. A couple who both receive the full State Pension will get £18,720 each year, which fully funds the minimum standard of living…with a little leftover. That’s great, but if you aspire to more than a £4 bottle of wine and a can of lager a week, want a bit more glamour than a £250 half-board coach trip a year, and don’t want to do your home maintenance, you’ll have to have saved up some cash to supplement your retirement income.

Assuming the State Pension is the only retirement income received, we can work out the income shortfall for the different standards of living.

Minimum               – Fully covered
Moderate                – £11,880 shortfall each year
Comfortable           – £30,980 shortfall each year

I won’t muddy the waters by taking into account tax here, but remember that the figures above are the after-tax amounts needed for these lifestyles.

Using the assumption of a 4% safe withdrawal rate, we can then calculate the pot of money required to safely provide these income shortfalls throughout retirement.

– For a moderate lifestyle you will need £297,000
– For a comfortable lifestyle you will need £774,500

Pretty big numbers! And these are based on the assumption that you retire at State Pension age and not before. Early retirement would need even bigger numbers.

Start saving early

The next question is how much do you need to save each month to have a chance of building up these sizeable retirement savings. Of course, this depends on when you start saving, and as you can see below, the earlier you start the better.

These figures are based on 5% investment growth and 3% inflation and are the total combined savings a couple would need to make.








These figures demonstrate the benefits of starting saving for retirement as soon as possible. By doing so you’ll harness the power of compound growth and won’t need to do all the hard work yourself.

There is a lot of nuance and detail missing from all this, but I think it provides a good general framework for thinking about how much income and savings you’ll need to provide the lifestyle you desire in retirement.

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