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How much do I need to live on when I retire?

How on Earth can you fathom how much income you will need when you retire? A good first step when retirement planning is to know how much you need to live on now.

For a realistic answer, you can use a budget-planning tool like Money Saving Expert’s Budget Brain to capture your current spending.

I like this tool because it’s like holding your finances up to the Snow Queen’s mirror. It will give you the true picture of your outgoings – warts and all – by speaking plainly about areas that might otherwise be overlooked, such as dental expenses or beauty therapies. (I spend a lot on virgin’s blood, myself).

Will I really need so much income when I retire?

It’s commonly held that we spend less in retirement than in the buccaneering days of youth, so you can probably strip out:

  • Mortgage payments (assuming you have paid it off by retirement age)
  • Work related expenses
  • Child related expenses

But retirement isn’t all about sitting atop a hoard of your treasure, saving pennies with coupons / cruising the Caribbean, and writing letters to Radio 4.

For instance, you might consider upping your allowance for:

  • Travel costs
  • Health
  • Heating
  • Werther’s Originals

Once you’ve done all that, you should have a reasonable base figure for the annual income you’ll need to hit on the retirement calculator.

A few wrinkles

If you’re having trouble picturing your retirement, try this gimmicky but fun retirement income calculator that can help you visualise a life of permanent leisure luxury.

Meanwhile, this retirement calculator lets you pick your desired monthly income, then crank the handle to see how fortune plays out.

Remember that the higher your target income:

  • The longer you will need to save,
  • Or the more you will need to save,
  • Or the higher your growth rate will need to be (which implies a riskier asset allocation),
  • Or some combination of all the above.

Working out how much you will need when you retire is just one part of creating your retirement plan, so do subscribe to Monevator for more pointers.

Offer: Head to RateSetter to earn higher interest – and a £50 sign-up bonus – or learn more about this offer. Remember investing money with P2P lenders like RateSetter or Zopa involves more risk than with cash savings.

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{ 3 comments… add one and remember nothing here is personal advice }
  • 1 Drew @ ObjectiveWealth August 7, 2012, 6:17 pm

    It sure can be difficult to visualise what your retirement income needs will be if you’re decades away from winding down. Better to err on the side of more, in case you fancy becoming a space tourist instead of going on boring old cruise ships.

  • 2 ermine August 7, 2012, 7:42 pm

    There’s also a trade-off here. If you want loads of income in retirement then you will either have a lower standard of living when younger (cos you’re saving more, or you will need to climb the greasy pole faster which can be more stressful) or you will retire later.

    I found it increasingly difficult to suffer fools as I got older, and you get more jaded because there are certain types of management reorganisations that come round time and time again as people forget how they failed the last time. It’s easier to believe the hype when younger. All in all the exerience of work became more stressful and less rewarding.

    Then there is the natural psychological process of individuation, as the inner world becomes more important relative to the outer world. What’s important to you in your 20s may not have the same relative value later on.

    I can’t say about child related expenses but work related expenses are a surprisingly high proportion of the costs – they were in the order of £4k in my case and I only lived 7 miles from work!

  • 3 David August 18, 2016, 2:33 pm

    As much as possible without paying unnecessary tax. Get your pension to the maximum LTA at 75, get ISAs every year for yourself, wife and kids, and move to Portugal to become a non habitual resident for 10 years.

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