When you retire or reduce the amount of time you spend working, you will need sufficient savings to support yourself. Many people underestimate the amount of money needed to retire. In this article, we’ll explore the percentage of your salary you will need yearly to maintain your current lifestyle in your retirement.
How much money do I need to retire?
The percentage of your salary that you’ll need for retirement will depend on the kind of lifestyle you hope to enjoy and how long you live.
The Pensions and Lifetime Savings Association (PLSA) has set out a retirement living standards guide consisting of three levels: minimum, moderate and comfortable. The guide aims to help people visualise their retirement and make sense of how much it could cost.
The minimum standard of living requires an annual income of £10,200 for a single person and £15,700 for a couple. This amount is enough to cover all basic needs while leaving some money for leisure activities such as a holiday in the UK, eating out once a month, and participating in affordable social activities twice a week.
The moderate standard of living comes at a cost of £20,200 for singles and £29,100 for couples. This standard provides greater financial security and flexibility. You can enjoy luxuries such as a two-week holiday in Europe and eating out a couple of times a month.
The comfortable lifestyle costs £33,000 per year for singles and £47,500 for couples. This amount can allow retirees to enjoy top-tier luxuries. These include regular beauty treatments and a three-week European holiday every year.
What percentage of my yearly salary will I need in retirement?
Needless to say, there is no single figure that can apply to everyone.
However, experts have crunched the numbers and found that most people need around 70% to 80% of their pre-retirement income to maintain their current standard of living in retirement.
For instance, if your household earns £40,000 a year before retirement, you are likely to need £28,000 to £32,000 per year during retirement to continue living as you currently do.
It’s important to note that the 70% to 80% figure is an average. Some people might need a higher percentage of their salary for a comfortable retirement and others may reduce their standard of living and live on less. For overall retirement planning purposes, however, 70% to 80% of your salary is a good figure to save for.
Your predicted circumstances when you retire can also help you determine the exact figure to aim for. For example, if you expect to own your home and have no dependants by the time you, you could aim for the lower 70% figure.
However, if you’ll still have mortgage debt and dependants to consider when you retire, consider aiming for 80%.
How can I boost my retirement income?
If you know the percentage of your salary that you have saved for retirement is not going to be enough, there are things you can do.
Question your spending
Most people don’t spend their money nearly as thoughtfully as they earn it. Creating a budget can help you keep track of your spending. You can identify areas where you could make savings that you can then direct to your retirement pot.
Increase your personal pension or workplace contributions
Increasing your pension contributions, even by a small amount, can add up over time. You will also receive tax relief from the government on your contributions. In the case of a workplace pension, your employer will contribute more as well.
Maximise your State Pension
To get the full new State Pension, worth £9,339 per year, you’ll need to have 35 qualifying years of National Insurance contributions. If you have gaps in your National Insurance record that could prevent you from getting the full amount, you can fill those using voluntary NI payments.
Generate additional income elsewhere
There are numerous ways to generate additional income to boost your retirement pot. You could:
- Take on an extra part-time job
- Rent out a portion of your home
- Turn a hobby into an income source (e.g. selling handmade crafts on eBay)
Get your savings and investments growing faster
The faster your money grows and compounds, the less you’ll need to save each year to meet your goals.
For example, with savings account interest rates currently being at historic lows, there is potential to grow your money faster through the stock market, particularly using a tax-efficient vehicle such as a stocks and shares ISA.
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