How Much Do I Need to Save to Retire?

It can be hard to know exactly how much money you should be saving to retire. Learn more about how your lifestyle impacts how much you should save in our blog.
Colby Brin
May 8, 2023
min read

Deciding how much to save for retirement can be tricky. Af all, there are many factors to consider, some of which are out of your control, like the effect of inflation.

However, with thorough planning, you can create a retirement savings budget that will see you through your retirement how you want to live it.

From the pensions you’re entitled to, to how you plan to spend your golden years and the amount you can realistically save each month – using the 70-20-10 budget to do so – there’s no single answer to the question: how much should I be saving for retirement?

However, by defining your expectations and calculating your retirement income, you can arrive at a realistic figure determining how much money is needed for retirement and the amount you should save to get there.

Your Retirement Lifestyle Expectations

How much money is needed for retirement depends directly on how you plan to live your life in your later years.

Is your priority to make sure your needs are covered? Or do you envision a future with more financial flexibility, with extra for luxuries like travel and investing in hobbies?

The kind of life you intend to lead in your retirement directly impacts how much to save for retirement now.

Research from Loughborough University found three tiers of retirement living standards,  minimum, moderate, and comfortable, along with an income estimate that will allow you to answer: how much should I be saving for retirement?

Minimum Retirement Living

For people who live minimally in retirement, focusing on covering their basic needs, a single person needs £12,800 a year, while couples can live on £19,900.

Living minimally means you won’t keep a car, you probably won’t be able to travel abroad, and if work needs doing around your home and garden, you’ll have to DIY it.

Living minimally, you’ll still have a little left over for recreation, such as occasionally eating out or continuing an inexpensive hobby – and you should be able to enjoy a week’s holiday in the UK each year.

Moderate Retirement Living

An annual income of £23,300 for a single person and £34,000 for couples is how much money is needed for retirement to live moderately in your later years.

Living moderately means you’ll be able to keep and use a car throughout your retirement, save money for a holiday in Europe once a year for two weeks, and spend a little more on things like clothing and food.

More importantly, moderate retirement living is characterised by the financial security a little extra income provides. After all, occasionally, life throws unexpected and – sadly – unavoidable expenses our way. As we get older, having more cash to fall back on is important as health-related expenses crop up.

Comfortable Retirement Living

You can enjoy a comfortable retirement with £37,300 per year as a single person, while a couple can afford this lifestyle with £54,500.

With a comfortable retirement income, you have much more flexibility to use your money as you want.

According to the UK Retirement Living Standards, this income allows three weeks of European travel per year. However, if travel is important to you, you can save money by cutting back on other spending categories.

Comfortable retirement living is about having choice and flexibility, more than just security.

This living will allow you to remodel parts of your house when needed, replace your car twice as often as in the ‘moderate’ living category, and spend more on food and clothing.

How to calculate your ideal retirement income by retirement lifestyle expectations

Though the three tiers of retirement living give an idea of how much to save for retirement, they aren’t tailored to your unique situation and aspirations.

For example, the research doesn’t consider how much debt you have – like the mortgage on your home, car payments, or monthly outgoings like insurance. It doesn’t consider whether you have expensive hobbies or any health expenses you have.

Therefore, although the Retirement Living Standards provide a good baseline to compare against, it’s smart to calculate your own ‘ideal’ retirement income. This will show you how much to save for retirement to achieve your goals.

You’ll need to consider these expenses and plan to have a little extra for unexpected costs.

Your retirement non-negotiable costs

Your non-negotiable costs cover your basic needs, such as paying for your home, getting around, and eating.

These costs might include:

·  Mortgage payments/rent

·  Utilities

·  Groceries

·  Transport

·  Healthcare

·  Taxes

·  Debt repayments

Once you’ve calculated how much each of these things will likely cost per year, you can determine how much money is needed for retirement at the most basic level. You must have a retirement income of at least this amount without making some serious life changes (such as selling your home).

Holiday costs

Travel is a priority for many people – especially as we get older. Sadly, it’s also one of the most significant expenditures listed on any retirement budget.

So, if you intend to travel a lot – and far and wide – budgeting this into your intended retirement income is a good idea. When you plan your holiday budget, make sure to include flights and accommodation, but also the cost of things such as activities, entertainment, food, and drink.

Annual/monthly expenses

Some costs recur regularly. You can plan for them and include them in your retirement budget. These monthly/annual expenses can include:

·  Birthday/Christmas presents

·  Clothing/shoes

·  Home maintenance and renovations

·  Hobbies

The more of your monthly and annual costs you can plan for, the more likely you’ll be able to give yourself the retirement income you want. So, if there’s something you know you’ll spend money on regularly, plan for it in your retirement budget.

Calculate Your Pension Income

To figure out how much to save for retirement, you’ll first have to calculate the income you’ll receive from your pension and any additional income sources.

This lets you gauge the difference between your pension income and your aspirational retirement income. In general, the greater your pension income in retirement, the less you’ll need to save to make up your ideal retirement income.

There are three main types of pensions: state, workplace, and personal.

Find Out Your State Pension Forecast

The government gives state Pensions to most people of State Pension age. In the UK, this is 66 years old.

How much you receive will depend on your National Insurance contributions record, but if you receive the full State Pension, this will be worth £203.85 per week or around £10,600 a year. You can check how much you’re entitled to with the government State Pension forecast calculator.

Company Pensions

You may also have a pension – called a workplace pension – arranged by your employer.

Every payday, a percentage of your earnings will be redirected into a pension scheme. Most of the time, your employer will also contribute to your pension. Bear in mind that the government may also provide tax relief to boost your contributions’ value.

You can check the current value of your workplace pension on your pension statement, which you should receive annually. You can also request an estimate of how much you’ll earn from your pension when you intend to start using it.

Additional income

Aside from workplace and state pensions, you might have a personal pension that you pay into – especially if you’re self-employed. Personal pension providers also typically send an annual benefit statement so you can learn the value of your pension.

You might also have additional sources of income, such as income from rental properties or other investments or even from part-time work you intend to take up.

Once you’ve calculated how much income you’ll have each month, you can calculate the difference to determine how much money is needed for retirement. Simply subtract your retirement income from the annual amount you need to live your ideal retirement lifestyle.

How Much Money Should You Be Saving for Retirement by Age

When financial advisors are asked “how much should I be saving for retirement”, they’ll usually answer with a percentage of your income – but this varies based on when you start saving and when you plan to retire.

The earlier you start paying into a pension, the smaller the percentage of income you’ll have to sacrifice each month to obtain the retirement lifestyle you want.

Age You Start Saving for Retirement % Income You Should Save Per Year
20 10%
25 12.5%
30 15%
35 17.5%
40 20%
45 22.5%

The sooner you start saving for retirement, the smaller the proportion of your earnings you’ll have to dedicate to your retirement savings. You can use the 50-20-30 budget to help you reach your savings goals.

How Much Money Should You Be Saving for Retirement Every Month

Since most people start saving for retirement before 35, a good rule of thumb is to allocate 10-15% of your income to retirement savings.

If you start saving for retirement earlier, you can add to your retirement savings for longer. This means you can contribute a smaller proportion of your income each month and have more disposable income to play with

However, regardless of age, it’s never too late to increase your contributions if your retirement goals change.

By calculating your estimated retirement income and subtracting that from your projected costs, you can answer for yourself: how much should I be saving for retirement? Using your specific living costs and aspirations for life in your later years, you can determine a retirement savings goal for you.

Read here about 10 Reasons to Save Money and why saving is so crucial, from powering your retirement to saving money for grandchildren. If you’re looking for an easy way to save monthly for your retirement, the HyperJar app and card is a great way to manage your retirement money, especially if you’re self-employed or need an easy to read app on your phone. 

Colby Brin

Head of Copy

Colby Brin is Head of Copy at HyperJar. With over 17 years of professional writing experience, Colby’s been a journalist, ghostwriter, language consultant, and writing trainer. Having previously served as Head of Copy at Wise, he’s worked in fintech for over six years. A native of New York City, Colby graduated from the University of Michigan, and has lived in London for two years.

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