How much pension income do I need to retire?

5 minutes

Understand how you can work out your budget to plan for a comfortable retirement

A detailed plan can play a vital role in getting your budget retirement ready.

Retirement can be a golden period of your life, packed with holidays, new hobbies and time spent with loved ones, whether friends or family. Average life expectancies of 79 years for men and 82.9 for women could mean it lasts much longer than you think.

If you leave the world of work too soon or fail to save enough in a pension, retirement quickly becomes a pain, rather than the pleasure you were looking for.

Whether you’re starting a new job, or planning for the future, it’s good to plan ahead so when it comes to retirement, your income needs to be considered. Read on to discover the kind of pension income that might ensure a comfortable retirement – and the important role a detailed plan can play.

How much do I need to retire?

It’s generally thought that a pension income worth between 50% and 66% of your final wage before retirement will keep things ticking over nicely. After housing costs, pensioners had an average weekly income of £349 in the 2021-22 financial year.

The Retirement Living Standard website states that the minimum income needed in retirement is £12,800 annually for a single person, and £19,000 annually for a couple. This doesn’t include a car and allows for £54 a week on the food bill. With the state pension being £10,600 a year (at the time of writing), many look to add extra income through other sources, namely private pensions, or defined benefit funds.

For a comfortable income, the Retirement Living Standards website says that a single person needs £23,300 and a couple needs an annual income of £34,000. This is based on more financial security and flexibility, including a car.

And finally, the Retirement Living Standards website estimates that a luxurious income for a single person is £37,300 and for a couple is £54,500. The truth is there’s no one-size-fits-all retirement income, and the exact amount you need will depend on your circumstances and goals. 

How to plan your retirement income

Whatever your age and ambitions, creating a detailed plan of action will help you work out a target retirement income – and keep everything on track. Key elements to build into this plan include:

  • When you intend to give up full-time work, including any plans to reduce your working hours
  • The size of the pension pot you’ve built up through a workplace or personal scheme so far. This could be either through a defined contribution or defined benefit plan.
  • The state pension payments you’re likely to receive, based on your National Insurance record.
  • How you intend to withdraw your savings during retirement. Your options include an annuity and income drawdown.
  • Any plans that you have for retirement, including holidays, homes and spending time with family.

What lifestyle do you want in retirement?

Your lifestyle goals are also key when calculating an ideal pension income. A government survey suggests people believe there are three types of retirement lifestyle:

  • Basic – it can be a struggle to afford bills and one-off costs.
  • Comfortable – retirees don’t have to worry about covering essential expenses.
  • Wealthy – more money for holidays, shopping and social opportunities.

Saving from an early age and keeping a close eye on your retirement plan are essential if you’re aiming for one of the higher categories.

Budgeting for different costs

As you get older, your outgoings gradually change. Childcare costs, mortgage payments and commuting fees will be a thing of the past for many people.

New expenses could start to arise, including healthcare bills and higher insurance premiums. You may also want to contribute towards your grandchildren’s education and wellbeing.

Carefully listing all the expenses you’re likely to face will play an important role in your retirement plan. If you want an easy way to view this, the government’s Money Helper website has a great budget planner to help you.

The costs you face in retirement will vary. For example, you’ll need to:

  • Consider if you want to work a part time role. Some retirees enjoy working, and take up part time roles in areas they are interested in.
  • Look at whether your outgoings will reduce: If you’re not in a place of work, and are at home for every lunch, you won’t be popping to the shops as often.
  • Review your car use: If you’re currently a two-car household, would one car be better in retirement? Have you got good public transport nearby that you can take advantage of instead?

Next step: Use a pension calculator

Once you’ve reviewed your savings, lifestyle goals and projected costs, a pension calculator can help to add some concrete figures to your retirement plan. By entering a few details about your pension savings, these tools can give you an estimate of your likely income after you retire.

Learn more about the pension calculator from 'MoneyHelper'

How much should I have saved in my pension?

The amount you need to save into a workplace or personal pension ultimately depends on how ambitious your retirement plans are. It also depends how you are planning to use your pension, whether with an annuity, pension drawdown or another method.

Your retirement income will largely consist of: 

  • Private savings. The money you save through an employer or personal pension scheme benefits from tax relief and can quickly add up over the years, becoming a significant cash pile.
  • State pension payments. A helping hand from the Government to top up your private savings. A minimum of 10 qualifying years of National Insurance contributions are needed to qualify. To get the full weekly amount (£203.85 for the 2023/2024 tax year), you’ll require 35 qualifying years. 

You can be flexible with your contributions, adjusting how much you pay in at different life stages. For example, many people choose to increase their contributions as they progress through their career and their wages rise. 

Experts also recommend halving the age when you first join a pension scheme and basing your starting annual contribution on that figure. For example, if you’re 30, dividing that number by two would give you a 15% contribution rate.

How much pension do I need to live comfortably?

The definition of a comfortable retirement differs from person to person and depends on things like the number of holidays you plan to take each year. However, some experts have suggested you could maintain a comfortable lifestyle with a pension income between half and two thirds of your final working salary.

How can I receive a regular retirement income?

Buying an annuity when you retire can help to convert your pension pot into a regular income. Annuities can last for a fixed term or pay you a guaranteed income until you pass away.

Will the state pension cover my retirement needs?

You’ll need more than the state pension to secure a comfortable lifestyle during retirement. It’s only meant to be a useful top-up for your private savings, so is unlikely to cover all your expenses in later life.

How LV= can help you face the future

A detailed retirement plan and pension calculator can offer valuable insights into your potential income. However, it’s important to remember that estimates are never set in stone, and things like your health and the strength of the economy can quickly change.

Take a look at the bigger picture with help from our retirement advice service.