How much money do you need to retire in the UK?

Working out how much money you need to retire in the UK is not straightforward. These calculations could be a good starting point though.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Working out how much money you need to retire in the UK is not straightforward as there are many variables to consider. For example, life expectancy, retirement age, marital status, income requirements, investment returns, inflation rates, tax rates, and the State Pension are all issues that you need to think about.

That said, there are certain basic calculations that can be a good starting point in helping you determine how much money you’ll need to retire. With that in mind, here’s a look at one simple retirement planning calculation that could be helpful, as well as some ballpark figures from industry experts.

The ‘multiply by 25’ rule

One rule that is often used to help calculate how much money you’ll need to retire is the ‘multiply by 25’ rule. This is fairly simple – you simply multiply your desired annual income in retirement by 25 and you’ll arrive at an approximate figure of how much money you need to save. 

For example, if you require an annual household income of £26,000 per year in retirement (the amount that Which says a household requires on average to live a comfortable retirement), the rule suggests that a couple would need to save £650,000 for retirement.

The problem with this rule, however, is that it doesn’t take into account income tax or State Pension payments so the calculations will need some adjustments. My colleague Rupert Hargreaves recently calculated that, when you factor in full State Pension payouts, a couple would need to save £430,820 (£215,410 per person) to retire comfortably on a household income of £26,000 a year. This figure still ignores income tax though.

Industry expert views

Industry experts, however, believe that you may require a higher figure than this to live a comfortable retirement.

For example, Royal London calculated last year that individuals in the UK now need at least £260,000 to retire without money worries. According to the insurer, that figure is the minimum required to fund a comfortable lifestyle. 

Aegon believes the retirement pot needed is even higher. It calculated recently that a person on an average UK salary now needs to build up a pension pot of £300,000 to be able to maintain their lifestyle. This figure was based on the assumption that income of £18,000 per year on top of State Pension payments is enough to live comfortably. 

The takeaway

Whether the figure required is £215,410, £260,000, or £300,000, the bottom line is that to retire comfortably in the UK, you need to save up a substantial sum of money. Therefore, it’s crucial to start planning early.

This means saving for retirement on a regular basis as early as possible, taking advantage of tax-efficient investment vehicles such as the Self-Invested Personal Pension (SIPP), the Stocks and Shares ISA, and the Lifetime ISA, and of course, investing in assets such as shares and funds that are likely to increase your wealth over time.

Ultimately, the earlier you start planning for retirement, the more chance you’ll have of living a comfortable lifestyle in your later years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Retirement Articles

Young female analyst working at her desk in the office
Investing Articles

Here’s how I’d target a £23k second income with £300 a month

If I was building a shares portfolio today, here's how I'd go about it. With these strategies I stand a…

Read more »

Investing Articles

How I’d invest my first £1,000 in a SIPP

Investing the first £1,000 in an SIPP can be a daunting process, especially for new investors. Zaven Boyrazian explains what…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »

Investing Articles

How I’d invest within a SIPP to target a 7% dividend yield

Zaven Boyrazian explains the steps he’d take to target a high-yield, income-generating SIPP for 2024 and beyond by investing in…

Read more »

Investing Articles

No pension at 50? Here’s my SIPP investment plan to target £16k a year in passive income!

With disciplined saving, a solid investment plan and the tax benefits of a SIPP, it’s possible to turbocharge pension growth…

Read more »

Young woman holding up three fingers
Investing Articles

These 3 investing steps could make me an £11,680 passive income!

If I was starting out on my investing journey, here's how I'd try to build a robust passive income with…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

Small SIPP at 55? I’d take these steps to boost my retirement savings

With a consistent savings plan, sound strategy, and some wonderful tax relief in a SIPP, it’s possible to massively grow…

Read more »

Investing Articles

Value, growth and dividends! 3 ETFs I’d buy in a Stocks and Shares ISA

Royston Wild believes these UK-listed exchange-traded funds (ETFs) could help him create a winning Stocks and Shares ISA.

Read more »