How to retire comfortably in the UK

How to retire comfortably in the UK
  • Retirement Planning
  • 6 minute read

Planning for your retirement can be a pleasure, but it can sometimes also be a source of anxiety. It all depends on how much you earn, how much you work, and how much you’ve been able to put into your pension fund. The sort of lifestyle you hope to lead after your retirement will also have a large influence on how much income you’ll need each month. Let’s take a look at your options, to help you to work out your approach to your retirement plan.


Your lifestyle in retirement

It’s difficult to say how much money you need to be comfortable in your retirement, as everyone has a different idea of the life they want to lead. You might be happy with simple pleasures and have little outgoings, or you might want to travel abroad on several holidays each year. The lifestyle you have in mind will directly influence how much you’ll need each month, and therefore how much you’ll have to contribute to your pension.

Whether you live alone or have a partner will also affect your targeted income. If you are single, you’ll only have the one state pension to supplement your pot, but you’re also likely to have lower overall monthly outgoings.


How much do you need in retirement?

In a recent survey of 6,800 retirees conducted by Which?, they found the average annual income necessary for a comfortable retirement is £26,000 per year. This was calculated by including all of the essential payments, such as groceries, utilities, housing costs, and transport, as well as spending on things that can provide a more comfortable lifestyle like leisure activities, and regular short holidays.

They also included a more luxurious lifestyle, including things like expensive meals out, buying a new car every five years, and longer holidays.

For retired couples the average yearly expenses were calculated as:

  • Essential — £18,000 a year
  • Comfortable — £26,000 a year
  • Luxury — £41,000 a year

For single retirees, the average yearly expenses were:

  • Essential — £13,000 a year
  • Comfortable — £19,000 a year
  • Luxury — £31,000 a year

Of course, how big your pension pot will need to be, depends on how long you end up living – the average life expectancy for a person born after the millennium is estimated to be around 100 years old, so you may end up needing more than you originally expected.


How much will I spend in retirement?

When you retire, you may find that your monthly expenses change. As part of your retirement plan, you should consider the type of lifestyle you wish to maintain, and factor in the additional costs you may encounter.

On some occasions, retirees end up spending more overall in retirement than they had previously. This is likely due to the fact that new retirees tend to have more free time to spend on hobbies and leisure activities, or taking longer or more frequent holidays. On the other hand, overall spending may drop, as some retirees simplify their outgoings or downsize their property.

It is also worth considering any unexpected costs in your estimations. In general, people are living longer and so you may have to pay for long-term care or other forms of healthcare, in retirement. Consulting with a professional financial adviser can help you to calculate your likely expenditure, and provide bespoke retirement advice.


State Pension

In the UK, the full basic State Pension is £137.60 per week and the full new State Pension is £179.60 per week, as of 2021. These are set to increase in 2022, with the basic State Pension increasing to £141.85 per week and the full rate of new State Pension increasing to £185.15.

Your State Pension is paid out every four weeks once you reach 66 years of age (as of 2021). In order to receive any State Pension, you’ll usually need to have been making National Insurance contributions for at least 10 qualifying years. The rules changed in 2016, therefore if you reached State Pension age before 6 April 2016, you’ll get the State Pension under the old rules instead. If this is the case, then you may find your payment is the lower amount.

Even so, that works out to around £9,350 per year, which may be a sufficient amount if you’re in a couple and are happy to only have the essentials. However, if you are single, or if you’re hoping for a more comfortable retirement, you’ll likely want to look at supplementing your State Pension. You can do this by paying into a private pension, and by discussing your workplace pension with your employer to maximise your contributions.


Private and workplace pensions

While there is no limit on how much you can pay into your pension, you can only pay in £40,000 per year before your contributions are taxed, or 100% of your income if you earn less than £40,000. This is the standard annual allowance for the tax year 2021/22. It is also worth considering the Lifetime Allowance which is £1,073,100 for 2021/22. This includes both private payments, as well as contributions from your workplace pension scheme.

All employers in the UK are required by law to enrol eligible jobholders in a workplace pension scheme, unless you choose to opt out. A percentage of your salary will be automatically paid into the scheme, as well as contributions from your employer, and any tax relief provided by the government.

Most automatic enrolment schemes base your contributions on the total earnings between £6,240 and £50,270 a year, before tax. From April 2019, the total minimum monthly contribution is 8% of your total earnings. The way this percentage is balanced between you and your employer will vary depending on the type of scheme they offer.

If you decide to make private payments into your pension pot, the monthly amount you need to pay in depends on how old you are when you start, and how much income you want in retirement.

Your target will also vary depending on how much your monthly salary has been, as your pot will already be larger if you have earned a bigger monthly pay-cheque. There are a number of online pension calculator tools that you can use to work out how much you need to pay, or you can take advantage of our retirement planning service to help you.  


Saving and investing for a comfortable retirement

When it comes to providing yourself with a comfortable and enjoyable retirement, the sooner you get started, the better. The longer you wait, the more money you will have to pay in each month in order to reach your goals.

Furthermore, the younger you are, the more risk you may be able to take. If you’ve still got a long way to go before you retire, you might look into investing in stocks and shares.  They have good potential for growth, but if they do dip, you have time for values to recover.  

However, the volatility of equities makes them an even riskier investment if you’re already approaching retirement as you might not be able to give them time to come back up if values drop – you may prefer to use lower risk investments such as bonds, which can provide a solid income with a lower risk profile. The value of investments can go down as well as up and you may get back less than you invested.

The further you are from retirement, the more consideration needs to be taken for inflation. The cost of living will continue to increase as long as there is inflation, so you’ll need to try to keep ahead of the curve to ensure you have the purchasing power you expect.

No matter how far away it may seem, the sooner you start planning for your retirement, the more likely it is that you’ll be able to live in the comfort you desire. Life expectancy is increasing, and the standard State Pension may only cover your essentials. There truly is no better time to take your future into your own hands, and to start saving and investing for your financial security and a joyful retirement.


Capital at risk. Any tax benefits will depend on your personal tax position and rules are subject to change.


To find out more or if you have any questions about financial advice, contact us to find out how we can help.

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