How much money do I need for a comfortable retirement?

The idea of finally retiring from work may fill some with joy – but it can also be a great source of anxiety. It is all well and good to dream of long summers, holiday homes and big family trips, but how much money do you need to fund a new life without a salary? 

Ian Cook, of the wealth manager Quilter, said: “In days gone by, defined benefit pensions meant that people typically didn’t need to worry about their pension income running out because they got a guaranteed income for life. 

“Now, in the world of defined contribution schemes, you need to carefully balance how much you want to have for your retirement and how long you want it to last for.” 

Below, Telegraph Money explains how you can fund a comfortable retirement, and why options like early retirement and the cost of care might mean you’ll need to set more aside.

• What is a comfortable retirement income in the UK in 2024?
• Can you afford to retire early?
• How much do I need to retire at 55?
• Do your savings need a bigger boost?
• The lifetime allowance
• Comfortable retirement FAQs

What is a comfortable retirement income in the UK in 2024?

According to figures from the Pension and Lifetime Savings Association (PLSA), a single person who owns their own home will need an income of more than £43,000 for a comfortable retirement this year, up from £37,300 in 2022-23.

The table below shows how much pension income experts think you need each year, depending on your lifestyle. Generally speaking, if you want a “moderate” retirement, with a few holidays in Europe each year and occasional treats for yourself, then the experts think you will probably need an annual income of around £31,300 after tax. This assumes you own your own home. 

How can you build up a pension pot large enough to retire comfortably?

These figures may not sound too far out of reach, but building up a pot big enough to consistently pay out these sums each year is not easy – especially as the overall value of your pension will fluctuate depending on moves in the stock and bond markets.

To help fund the retirement you seek, you should consider taking the following steps, which include plans for both your state and private pension:

1. Check your state pension forecast
2. Fill in gaps in your National Insurance record
3. Increase pension contributions
4. Maximise employer contributions
5. Consider opening a Sipp
6. Make lump sum contributions
7. Invest wisely
8. Make the most of available tax relief
9. Cut unnecessary expenditure
10. Use the full Isa allowance

The first thing to do is to check your state pension forecast, as these government payments will act as a helpful building block for your retirement income.

You will qualify for the full state pension if you have 35 years of National Insurance contributions. This will vary according to your career history – for example, if you have ever worked abroad, your record may be lower – so it is always best to check beforehand. You can view your official state pension forecast via the government website.

If there are gaps in your National Insurance record, then you can pay voluntary contributions or claim NI credits to help boost your state pension payments – you now have until April 4 2025 to fill any gaps from 2006-07 onwards.

The state pension age is currently 66, although it is in the process of rising to 67 by 2028, and is legislated to rise again in the mid 2040s to 68. If you want to retire before this age, then you will need a much bigger private or workplace pension to help you do so. You can head to our comprehensive guide on how to retire early for concrete steps on how to do this. 

Can you afford to retire early?

The earliest age at which most people can access their private pension pot is set at 55. This is meant to stay at around 10 years lower than the state pension age, so will likely move in the future, too.

How much do I need to retire at 55?

If you want to retire early at 55 and maintain a comfortable lifestyle, you would need a pension worth around £700,000 on top of your state pension, according to calculations by Quilter. That would leave you with around £78,690 by the time you reach the age of 82. If you lived beyond this, your pot would be exhausted by the time you reach 88.  

Waiting for your state pension payments can alleviate some of the pressure. If you kept working until the current state pension age of 66, then your pot would need to be around £450,000. 

It would be worth around £122,176 by the time you reached 84, at the average life expectancy. It is important to keep these figures in mind as anything left in your pension can be passed on free of inheritance tax. 

Do your savings need a bigger boost?

There are several scenarios to consider that may indicate a need to boost your pension pot, including:

• Marriage or divorce
• Economic instability
• Unexpected health issues
• History of familial longevity
• Tax changes

Some people plan for retirement under the assumption that they will need less money as they age, because they will go out less and will have paid off any leftover debts – but this may not be true if you need help with care, Quilter’s Ian Cook added.

The “healthy” life expectancies of men and women are 63 and 64 years respectively, so you could feasibly need two decade’s worth of help. 

Given all these cost pressures, your pension pot may look leaner than you would like. The key is not to panic, as there are still lots of ways that you can help your nest egg grow, especially as the cap on lifetime pension savings is in the process of being dismantled.

The lifetime allowance

The lifetime allowance previously capped the amount you were able to save – most recently at £1,073,100. If you exceeded this amount, you were subject to tax at a maximum of 55pc.

Mr Cook said: “During your lifetime you may have increases in your salary, big bonuses or a windfall from an inheritance or elsewhere. Whenever this happens, think about your pension.” 

“With the annual allowance growing to £60,000 a year and the lifetime allowance set to be abolished it leaves people with a big allowance to play with.” 

The annual allowance caps how much you can pay into your pension tax free each year. It is set at £60,000, but tapers down for higher earners. 

For people who have already retired and are considering a return to work, a different rule applies when paying into their pension – payments are subject to the “money purchase annual allowance” which is set at the lower level of £10,000. 

Comfortable retirement FAQs

How much money does the average person have when retiring?

According to the latest government data (2022), the average annual income for pensioners after taxes and housing costs works out at around £18,148 per year.

How long will my money need to last?

The average life expectancy in the UK is 78.6 for men and 82.6 for women, according to the latest government figures.  If you were to take your pension at 55, then you would need it to last on average for around 25 years.