Your web browser is outdated and not supported for security reasons. Some parts of this website will not work, please update your browser.

How much will I need to retire?

Octopus Wealth4 July 2019

“How much will I need to retire?” It’s the big question that almost everyone will have thought about at some stage. Things would be a lot easier if there was a definitive answer to it, too.

The reality of how much money you actually need during retirement often takes people by surprise. (Spoiler: it’s a lot more than you think.)

43% of the public don’t know how much they’ll need during retirement, while over half believe that £100,000 is enough to retire comfortably. According to recent reports, however, the average recommended amount is actually £260,000–£445,000.

And remember — “comfortable” is entirely subjective. The amount you’ll actually need will depend on how much you expect to spend during your retirement, and for how long.

Unfortunately, there’s no tried and tested equation that’s going to tell you exactly how much should you be saving. But there are some ways to give you a good idea...

How much income will I need?

To answer this question, you’ll first have to think about what you want to do with your income during retirement and what your big expenses will be.

For some, it’s putting their children through university or helping them get on the property ladder. For others, it’s buying a sunny second home somewhere and enjoying life’s luxuries. And for others still, it might be paying for long-term medical care for you or a loved one.

Your retirement will be unique. As will the big things that matter to you in you and your family’s future. Mapping them out is the only way to get a feel for that elusive magic number of how much you’ll actually need to keep you going.

Consider the following examples:

  • Education — paying for your children/grandchildren’s education is a priority for some, but it’s costly. University fees in England are now the highest in the world, with a UK average of £9,250 per year. Private schools aren’t cheap either — upwards of £17,000 per year is typically the norm.

  • Healthcare — although it’s something none of us like to think about, our health will inevitably decline as we get older. And it comes with a price.

On average, residential care costs £617 per week in the UK (£721 in London), while for nursing care you’re looking at a basic weekly rate of £844 (£922 in London).

You’ll be required to pay the bulk of the costs if you have the means. In some cases, this can mean losing your family home to foot the bill.

Though not an enjoyable conversation, planning and saving for medical care in later life could save you and your family a lot of heartache.

  • Spending — your spending pattern will change over the course of your retirement. The first decade you’re likely to go on all those exotic holidays, treat your tastebuds to the finest restaurants, splurge on a few luxuries and have a more relaxed attitude to your spending. And why not — you’ve earned it.

If you’re the kind of person that likes to change cars frequently, take multiple holidays per year and has a penchant for high-end fashion — you’ll need a lot in the tank to be able to fund it continuously.

How long will my retirement last?

How much you’ll actually need in your pension pot doesn’t just depend on how much you’re going to spend. It also depends on how long you’re going to be retired for.

Life expectancy is continuing to rise. We’re all living much longer and consequently spending more time in retirement than previous generations — some people could realistically spend 40 or more years not working. You don’t want your money to run after 30.

Obviously, it’s extremely hard to predict just how many years your retirement might last for — but it’s better to aim high and err on the side of caution. Because even an extra 2-3 years in retirement could be enough to drain your pot altogether.

Relying on the State Pension alone, if you do get to the bottom of your savings, won’t be easy, either. At a maximum of just £8,767 per year (for 2019/20), it isn’t going to get you very far on its own.

So...how much does it all cost?

Want to find out how much you can take every year as your retirement income? And more importantly, how much you’ll need in your pot before you can retire?

We answer this and more of the big questions you might have in our complete retirement guide.

Download it today to see if you’re on track to retire when and how you’d like to.

Want to stay in the know?

From the latest blogs to company news, sign up to our mailing list to make sure you’re the first to hear.