Retirement is a milestone that many of us look forward to, but planning for it requires careful consideration. One of the key questions that arises is: “How much do I need for retirement in the UK?” Let’s delve into this topic further.
What are the average savings in the UK?
Studies indicate that the average retirement savings in the UK vary widely. According to research from Raisin, the average person’s savings in the UK amount to £9,633.30.
The amount saved varies by age and by region, with men tending to have more saved than women and those in more affluent areas like London and the South East holding more in savings than elsewhere in the country.
The research also shows that, for those nearing retirement (in the 55 and over category), the average savings pot is just over £20,000.
It’s important to recognise that this amount may not be sufficient for a comfortable retirement, particularly if you wish to maintain or even elevate your current lifestyle.
The State Pension can help people with their general living costs like food and bills, but for a fulfilling retirement it’s often necessary to have some money saved or invested to bolster what the government can offer.
How your length of retirement impacts your pension
With life expectancy increasing, it’s crucial to plan for a retirement that could potentially span several decades. The average length of retirement in the UK has been steadily increasing, with many individuals now enjoying 20 to 30 years of post-work life.
This underscores the importance of having a robust financial plan in place. Building a retirement pot for a 20 year period is a fundamentally different task than planning for 30+ years of relaxation. We’ll explore the different lifestyles that people tend to aim for in retirement and the kind of financial planning that needs to go into each one.
Different amounts for different lifestyles
The amount needed for retirement can vary greatly depending on your desired lifestyle. Let’s explore some scenarios:
1. Basic necessities
If you’re aiming for a minimalist lifestyle, focusing primarily on essential needs such as housing, food, and healthcare, a more modest retirement fund may suffice.
In this scenario, careful budgeting and prudent financial management can play a significant role in ensuring a comfortable retirement. Your state pension should also be able to help with covering the basics, so some light financial planning can make a retirement of basic necessities achievable.
2. Comfortable living
For those who want to maintain a similar standard of living to what they had during their working years, a more substantial savings cushion is recommended.
This could include funds for travel, hobbies, occasional dining out, and other discretionary expenses. It’s important to factor in potential inflation and rising costs of living. For those looking for a comfortable retirement, some serious financial planning is likely to be needed, with decisions made early into a person’s career having a major impact on what they take into retirement.
3. Luxury and travel
If you have dreams of extensive travel, expensive hobbies, or other luxury pursuits, a higher retirement fund is imperative to sustain this lifestyle.
It goes without saying that this category requires meticulous financial planning, potentially involving investment strategies that offer higher returns.
This kind of luxury life after work is most achievable if you have a high salary, inherited wealth or you have an effective financial plan and can follow it for decades in the lead up to retirement. Ideally, everyone should be able to afford some luxuries and travel when they retire, but some planning is absolutely needed.
What is a comfortable retirement income for couples?
Understanding what constitutes a comfortable retirement income for couples is crucial. According to Joslin Rhodes, a financial planning service, a comfortable income for a couple in the UK ranges from £26,000 to £39,000 per year.
This allows for a reasonably comfortable lifestyle with some discretionary spending. However, it’s essential to note that your circumstances could be different, and individual preferences vary.
Average household savings in the UK
According to NimbleFins, the average household savings in the UK amount to £8,388. This figure highlights the importance of diligent savings habits to secure a more comfortable retirement.
Why not take a look at InvestEngine’s long-term investing calculator, to get an idea of how much you’d need to invest, how long you’d need to invest for, and the level of returns you’d need to see to reach your financial goals.
Factors to Consider
In addition to lifestyle considerations, several other factors can significantly influence your retirement savings needs:
- Inflation: Consider how inflation might erode the purchasing power of your savings over time. It’s crucial to invest in assets that can potentially outpace inflation. The state pension rises with inflation, but your personal pensions are unlikely to – effective planning can make all the difference here.
- Healthcare costs: As you age, healthcare expenses may increase. Factoring in potential medical costs is crucial, and considering long-term care insurance may be wise.
- Pension: Include any expected pension payments or government support in your retirement income calculations. This forms a crucial component of your overall retirement income.
- Investment returns: Depending on your investment strategy, the returns on your savings can significantly impact your retirement fund. Diversification and a long-term investment perspective are key considerations.
Planning for a secure retirement
Getting a good pension might be challenging, which is why it’s prudent to start investing early for a well-prepared retirement. Now is as good a time as any to explore the benefits of investing in an InvestEngine ISA or self-invested personal pension (SIPP)!
InvestEngine ISA and InvestEngine SIPPs offer tax-efficient investment opportunities, providing you with the tools to build a secure financial future. Capital at risk.
How a SIPP can help you plan for retirement
Conclusion
Preparing for retirement involves careful financial management and protective measures.
It can be a useful exercise for anyone, at any age, to consider the kind of retirement they’d like to have and to build a broad financial plan to achieve it. This gives you short and medium-term goals to hit, to set yourself up for the long-term goal of a fulfilling retirement.
Important information
Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.
This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.