Retirement: How much income will you need?

As you think about the details of retirement planning, there are two big questions you need to ask:

  • How much income will I need?
  • How long will it need to last?

The answers aren't as simple as the questions, of course - but we can help you to get a clearer idea what your financial needs might be during your retirement, and how they could change over time. The more you know about this, the easier it will be to plan a realistic budget and make sure you don't overspend.

Some more questions to think about

First of all, check how much you have already saved into your personal pension plan – or any other kind of savings or investment accounts which you’ll be using to help fund your retirement

  • Can I afford to contribute more to my personal pension plan?
  • Are there any areas where I could be spending less?

To help you answer these questions, focus on your regular outgoings to see how much you could afford to put aside towards funding your retirement. You can do this by calculating the below:

What is your monthly take home pay after tax and National Insurance pension contributions and any other deductions?

Work out your essential monthly spending:

Work out your optional monthly spending

Mortgage/rent payments

Eating out or takeaways

Gas and electricity

Clothing and footwear

Water

Holidays

Food and groceries

Hobbies and recreation

Council tax

Satellite TV subscription

Phone and internet

Alcohol

Travel – e.g. public transport

Cigarettes and tobacco

Motoring – e.g. fuel, car maintenance, tax, MOT

Personal good and services e.g. make-up, medicine

Credit cards and loans

Fees for children’s activities

Insurance

Furniture, appliances and pet care

Childcare

Other

Calculate your ‘essentials’ total

Calculate your ‘optionals’ total

Deduct your total monthly essential and optional spending from your monthly take home pay to calculate your remaining income

 

The next stage is to consider how much your personal pension plan will be worth when you retire. This means asking yourself:

  • Is it likely that I’ll be able to increase contributions to my personal pension plan in the future? And could I get more from my employer?
  • How many more years will I be paying into my personal pension plan?
  • Do I need to put any more money away?

How much will you have to live on?

Even if you’re close to retirement, and have a clear idea how much money is likely to be in your personal pension plan when you finish work, it’s sometimes hard to see how that figure might translate into a monthly income.

Your personal pension plan may run into thousands of pounds, but how long will this last, and how much can you afford to spend each month?

How long will your money need to last?

This will depend on how long you will be retired.

Many people underestimate their life expectancy, and run the risk of running out of money in their later years, or having to live on a smaller amount than they intended.

It’s never too early to prepare for retirement. The earlier you start thinking about what kind of retirement you want and where your money is going to come from, the more control you can have over that period of your life.