How much to save for retirement – according to your lifestyle

Whether retirement is just around the corner, or decades away, one worrying truth remains the same – you’re probably not saving enough for it.

Despite auto-enrolment pension reforms, which set up qualifying employees with a workplace pension and overall contributions of 8pc, most workers are still not saving enough for a comfortable retirement – and if you’re planning a luxurious retirement, then you’d need to save far more.

Experts often suggest multiplying your working salary by 10 to calculate how much you will need to save to fund your retirement. But this will be different depending on your lifestyle and particularly if you want to retire early.

Ultimately, the sooner you stop working, the more money you will need to fund your golden years.

The first place to start is knowing how much you have in your pot and then working out how much you need to get the retirement lifestyle you desire.

Table of contents

• How much will I need for retirement?
• How much is currently in my pension pot?
• How do I find and consolidate my pensions?
• Pension calculator
• Avoid paying too much tax
• Can I afford to retire early?
• Should I retire abroad?

How much will I need for retirement?

The main factors when considering how much you will need for retirement are when you want to retire, and the lifestyle you are seeking.

For example, according to the Pensions and Lifetime Savings Association (PLSA), the typical income needed for a moderate retirement is £23,300 for a single person and £34,000 for a couple. This includes spending £127 on the weekly food shop, having a two-week holiday in Europe and eating out a few times a month.

To get that level of income, the PLSA estimates that a couple already getting the full new state pension would need a retirement pot worth £121,000 each, based on an annuity rate of £6,200 per £100,000.

But if you have loftier ambitions – perhaps regular beauty treatments, theatre trips and three weeks’ holiday in Europe a year – your pension savings will need to give you a much higher income. 

How much is currently in my pension pot?

It sounds obvious, but the sooner you start saving for retirement, the more money you will have available to spend during your golden years.

Keeping an eye on how much is in your pension while you’re still working can help make sure you are on track to retire when you want.

Workers over age 22 (who earn above a certain threshold, currently £10,000) have been auto-enrolled into workplace pension schemes since 2012. This will be many people’s main source of retirement savings. 

These are defined contribution schemes, so you need to put money in and will also get contributions from your employer, as well as earning tax relief from the government and benefiting from investment growth.

You should get regular updates and statements on your pension from the scheme provider, as well as a website where you can login and see how much is in your pot, how it is performing and if you are on track to reach your retirement goals.

Some older workers from big companies and public sector staff may have a different type of pension called a defined benefit scheme. The value of this will depend on how long you have been working, your salary and when you retire, and you should also receive regular updates of how much you’ve saved so far.

If you’re not sure what’s in your pension pot, your provider will be able to tell you. If you’re not sure who your provider is – or perhaps you have several pension pots you’ve lost track of – there are ways to track them down.

How do I find and consolidate my pensions?

Few people have a job for life any more; on average, workers build up 11 pension pots over the course of their career, as each job or employer tends to have its own scheme.

Therefore, it can be hard to keep track of who your pensions are with and how they are performing.

Keep an eye out for post or emails from your providers that will show details about who your pension money is invested with.

You can also use the government’s Pension Tracing Service to find lost pots as long as you have the company name or know who ran the scheme.

It may be worth combining all your pensions if you want to manage your retirement pot in one place. Services such as PensionBee or Profile Pensions can do this for you, or you could transfer the funds to your most recent provider. 

Another option is to set up self-invested personal pension (Sipp), either with a financial adviser or on a DIY investment platform. 

The Government and providers are also working on Pension Dashboards where savers can see the size of their pot in one place, but the deadline for all schemes to be connected is 2026, so it could be a while before you’ll be able to use it. 

Pension calculator

Once you know how much is in your pension, the next challenge is working out when to access it and how to take it.

You can access your pot from age 55 and can take 25pc of withdrawals as tax-free cash.

The rest of the money can be accessed either by staying invested and making withdrawals, known as drawdown, or turning the pot into a regular income by purchasing an annuity.

Your pension will rise and fall depending on market conditions so it may be worth waiting if you need to build a bigger pot. Waiting longer could help you access more money but there is also a risk that the value falls if the economy performs badly.

Once you access your pension, you also need it to last so it can support you through your retirement and various economic conditions. The earlier you retire, the longer you will need it to last.

Our calculator can help estimate how long your pension could last under different markets based on your age, the value and how much you are withdrawing.

Avoid paying too much tax

The taxman will also take an interest in how you access your pension pot, which is another reason why you need to think carefully about your withdrawal strategy.

Once you have taken your tax-free lump sum, you may have to pay income tax on withdrawals and annuity payments. You could even be pushed into a higher tax band if you also have income from other assets, such as rents or savings and investments.

There are plenty of other ways you can end up paying tax without realising – for example, if you’ve taken your lump sum but continue to pay into your pension afterwards, or failing to realise that state pension income is taxable. Luckily, there are ways to avoid it, too – including making the most of your tax-free allowances and tax-protected savings. 

Our guide below shares vital tips on how to make sure you don’t pay any more tax than you need to.

Can I afford to retire early?

For many workers, early retirement is the dream – one that may well seem most appealing on a Monday morning. But making your pension savings stretch even further is not an easy task, especially if you want to fund a comfortable lifestyle when you’re no longer working.

While you can access your private pension funds from your fifties, average life expectancy for men is 82, meaning your savings would need to stretch almost 30 years if you were to give up work at the point of accessing your pension pot. This could mean aiming for a pension pot of around £700,000.

Our guide explains the obstacles in place for retiring early, and how to overcome them.

Should I retire abroad?

Escaping British weather for sunnier climes is a popular option, but there are extra factors to consider when retiring abroad, which could mean needing an even larger pot.

You are likely to need a visa and evidence that you can support yourself if retiring abroad in popular European Union countries, with each member state having its own minimum income requirements.

British pensioners also have to be careful when retiring to France or taking their pension in Spain as the 25pc tax-free withdrawals rule does not apply if accessing the funds while living in these countries. France and Spain also have a wealth tax, which could reduce your income.

In contrast, retiring in Portugal may be more attractive to people with larger pension pots, as there is no wealth tax – plus the country charges just 20pc tax on pension income from abroad.

No one can predict how much bills will rise and the impact that inflation or interest rates will have on your income wherever you retire. So working out how much you will need to fund your golden years is a complicated question, but perhaps the simple answer is – as much as possible.