Do you know how much money you’ll need to live on when you retire? If you don’t, you’re in good company.
Research by the Pensions and Lifetime Savings Association suggests around 77% of pension savers don’t know how much they’ll need to retire on, and only around 16%
can put a figure on it. Here are some tips to help you start working out how much you’ll need.
Imagine your future
Imagine getting up in the morning and having lots of time to do whatever you want. What would you do? Where would you go? Who would you see?
- What are the things you don’t have time to do now because of work? Reading? Walking? Gardening? Going to the gym?
- Do you want to try something new? Is there a hobby or sport you’ve always wanted to have a go at? Sewing? Carpentry? Stand-up paddle boarding? Circus skills?
- Have you always wanted to volunteer but never had the time? Would you like to teach adults to read? Join a local conservation group? Visit people who are housebound? Be a school governor?
- Have you always wanted to do more travelling? Or are there family members you’d like to spend more time with?
It’s worth taking some time to think about all the possibilities.
Budget for a better life
To understand how much you’ll need when you retire, you need to know what you spend now.
Do you know where all your money goes? Find out by doing a budget. This involves working out how much you spend on everything per week or month – heating, lighting, food, clothes, travel, entertainment and anything else you spend money on – and comparing it to how much money you’ve got coming in.
The best thing about doing a budget is: it’s for life, not just for retirement. Being on top of your money makes your life better now. Having a budget puts you in control of everything you spend. It can even show up ways to make savings you might not have thought of.
It takes a bit of time and work, but there are online tools to help you, like MoneyHelper’s free budget planner.
Changing lifestyle costs
Once you’ve got your budget, it’s time to think about how your lifestyle costs could change after you’ve retired. Go back to Imagine your future and think about all the things you saw yourself doing. Which costs will go away? What new things will you need money for?
For example: if you currently commute to work, you won’t be doing that any more. You won’t need things like clothes for work. If you have a mortgage, you could have paid it off.
But spending time at home rather than being at work could mean costs like heating and lighting go up. You might be travelling more, rather than less. Maybe you’re not buying clothes for work, but you might be buying other things, like sports equipment.
Who wants to live for ever?
To work out how long your money needs to last, you need to have an idea of how long you could live. Strange as it seems, lots of people underestimate this.
According to the Office for National Statistics (ONS), average life expectancy for a man aged 65 is now 83½. For women aged 65, it’s 86. You can use the ONS’s life expectancy calculator to estimate your own possible life expectancy, based on your age now. But remember, this is average. You could easily live longer.
So your money for retirement could need to last 20-30 years - maybe even more.
The pension saving ‘five a day’
You know the ‘five a day’ healthy eating guide for vegetables and fruit? The Pensions and Lifetime Savings Association has come up with a ‘five a day’ for pension saving. The Retirement Living Standards are three levels of income – minimum, moderate and comfortable – designed to be a simple guide to understanding what kind of living standard you could have with different amounts of money.
These are the current amounts for a single person and a couple (they’re updated every year). Find out more about the Retirement Living Standards.
Join the 16%
So as you can see, a little bit of time and effort can give you a clearer view of how much you’ll need to live on when you retire. We hope this helps you join the 16% of people who can put a figure on their future retirement income.