See what steps may help you
Written by Michael Foote, Insurance Expert
The amount you need to retire comfortably in the UK depends on your lifestyle, housing situation, and expected retirement age. Most financial planners suggest you’ll need 60% to 80% of your pre-retirement income to maintain your standard of living.
According to the Pensions and Lifetime Savings Association, a single person requires around £14,400 per year for a minimum retirement lifestyle, £31,300 for moderate, and £43,100 for comfortable. For couples, these figures rise to £22,400, £43,100, and £59,000 respectively.
Your State Pension will provide some income, but rarely enough on its own. The full new State Pension is currently £221.20 per week (£11,502.40 per year), available only with 35 qualifying years of National Insurance contributions.
Calculating Your Retirement Needs
Start by estimating your annual expenses in retirement. Consider these categories:
- Housing costs (mortgage, rent, maintenance, council tax)
- Utilities and household bills
- Food and groceries
- Transport (car running costs, public transport, petrol)
- Healthcare and insurance
- Leisure and holidays
- Clothing and personal care
- Subscriptions and memberships
Multiply your estimated annual spending by the number of years you expect to live in retirement. The Office for National Statistics projects that a 65-year-old man will live on average to 84, while a woman will live to 86. Most people plan for 25 to 30 years of retirement.
If you need £25,000 per year and plan for 30 years, you’d require £750,000. However, this doesn’t account for investment growth or inflation, which is why financial advice is valuable.
State Pension and When You Can Access It
You can claim your State Pension once you reach State Pension age, currently 66 for both men and women. This is scheduled to rise to 67 between 2026 and 2028, and potentially to 68 in the late 2030s.
You need at least 10 qualifying years on your National Insurance record to receive any State Pension. To get the full amount, you need 35 qualifying years. Check your State Pension forecast on the government website to see what you’re on track to receive.
Delaying your State Pension increases the amount you receive. For every nine weeks you defer, your pension increases by 1%, working out to around 5.8% per year.
Private and Workplace Pensions
Most employees are automatically enrolled into a workplace pension scheme, with contributions from both you and your employer. The minimum total contribution is 8% of your qualifying earnings, with at least 3% from your employer.
You can usually access your private or workplace pension from age 55 (rising to 57 in 2028). You have several options:
- Take up to 25% as a tax-free lump sum and buy an annuity with the rest
- Take up to 25% tax-free and use pension drawdown for flexible withdrawals
- Take the entire pot as cash (only 25% is tax-free, the rest is taxable income)
- Leave it invested and withdraw later
The right choice depends on your circumstances, health, and other income sources. Speaking to a financial adviser is worthwhile, especially if your pension pot exceeds £30,000.
Our Expert, Michael Foote, Says:
“Many people underestimate how long their money needs to last in retirement. Planning for at least 25 to 30 years is sensible, especially with life expectancy increasing. Don’t forget that your needs may change over time, with higher healthcare costs likely in later years. Start reviewing your pension regularly from age 50 onwards so you can make adjustments if needed.”
Additional Income Sources in Retirement
Beyond pensions, you may have other assets that provide retirement income:
- Individual Savings Accounts (ISAs) offer tax-free growth and withdrawals
- Property rental income if you own additional properties
- Part-time work or consultancy in early retirement
- Savings accounts and investments
- Downsizing your home to release equity
Using a combination of income sources helps you manage tax more efficiently. For example, taking some income from ISAs (tax-free) alongside pension withdrawals (taxable) can keep you in a lower tax bracket.
Inflation and Investment Growth
Inflation erodes the purchasing power of your money over time. Even at a modest 2% inflation rate, £25,000 today will need to be around £41,000 in 25 years to maintain the same buying power.
Keeping some of your retirement savings invested helps your money grow and keep pace with inflation. A balanced portfolio typically includes a mix of stocks, bonds, and cash, adjusted to become more conservative as you age.
Many retirees follow a rule where they hold a percentage of bonds equal to their age, with the remainder in stocks. For example, a 70-year-old might hold 70% bonds and 30% stocks. This is just a guideline; your personal risk tolerance and circumstances should guide your decisions.
Common Mistakes to Avoid
- Underestimating how long you’ll live
- Failing to account for inflation
- Not reviewing your pension regularly
- Taking too much income too early and depleting your pot
- Ignoring tax implications of pension withdrawals
- Leaving it too late to start saving
- Not seeking professional financial advice when needed
Starting early makes a significant difference. A 25-year-old contributing £200 per month until age 65 at 5% growth could accumulate around £305,000. Starting at 35 with the same contributions would result in around £175,000, nearly half as much.
Healthcare and Insurance Costs
While the NHS provides free healthcare, you may want private medical insurance in retirement for quicker access to treatment. Premiums increase with age, so factor this into your budget.
Other insurance to consider includes:
- Buildings and contents insurance
- Life insurance if you have dependants or an outstanding mortgage
- Critical illness cover (though this becomes more expensive and harder to obtain as you age)
- Travel insurance, which often costs more for older travellers
Some retirees choose to self-insure for certain risks if they have sufficient savings, but maintaining appropriate cover for your home and health is generally advisable.
Reviewing Your Retirement Plan
Your retirement needs aren’t fixed. Review your plan regularly, especially:
- Every five years from age 50 onwards
- When you experience major life changes (marriage, divorce, inheritance)
- When pension rules or State Pension age changes
- If your health circumstances change
- If you plan to retire earlier or later than originally expected
Most pension providers offer free online tools to help you track your progress. Consolidating old pensions into one place can make management easier, though always check for exit penalties or valuable guarantees before transferring.
How Much Should You Save Each Month?
A common rule of thumb is to save half your age as a percentage of your salary when you start your pension. If you begin at 30, save 15% of your salary. Starting at 40 means saving 20%.
This is only a guideline. Use online pension calculators to model different scenarios based on:
- Your current age and planned retirement age
- Your current pension pot value
- How much you contribute monthly
- Your expected investment growth rate
- Your desired retirement income
The earlier you start, the less you need to contribute each month thanks to compound growth. Even small increases in contributions can make a substantial difference over time.
Tax Considerations in Retirement
Your pension income is taxable, though you have a personal allowance (£12,570 for 2024/25) before you pay income tax. If your total income exceeds this, you’ll pay:
- 20% on income between £12,571 and £50,270 (basic rate)
- 40% on income between £50,271 and £125,140 (higher rate)
- 45% on income over £125,140 (additional rate)
The State Pension counts towards your personal allowance. If you receive the full State Pension of £11,502, you have only £1,068 of personal allowance remaining for other income before paying tax.
Strategic withdrawal planning can help minimise tax. For instance, taking your 25% tax-free lump sum in years when you have no other income, or spreading withdrawals to avoid moving into higher tax brackets.
When to Seek Professional Advice
Consider speaking to a qualified independent financial adviser if:
- Your pension pot exceeds £50,000
- You have multiple pension pots and are unsure whether to consolidate
- You’re considering transferring a defined benefit (final salary) pension
- Your circumstances are complex (self-employed, contractor, multiple income sources)
- You want to ensure your pension arrangements are tax-efficient
- You’re within five years of retirement
Advice fees vary but typically range from £150 to £250 per hour, or a percentage of assets under management. Many advisers offer an initial consultation at no cost.
Get a Quote Today
Planning your retirement finances is just one part of securing your future. Protecting what you’ve built is equally important. Use the quote button at the bottom of the screen to compare insurance options and ensure your home, health, and assets are properly covered as you approach and enter retirement.