The Motley Fool

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

Image source: Getty Images.

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.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.