Soaring inflation, the cost of living crisis, and an expectation to support children and grandchildren for longer have pushed up the amount people need to retire. Living inheritances, where older people give their children money before they die, are on the rise. In fact, in the past three years, 15% of people over the age of 65 have given their relatives a "living inheritance", and another 16% of people aged 40 or older are considering doing the same in the next three years according to a report by interactive investor.
All these factors have led to an increase in the amount people need to retire. According to the latest figures by the Pension and Lifetime Savings Association (PLSA), single people need at least £14,400 per year to retire in 2024. Couples, on the other hand, must achieve a combined annual income of £22,400 for a bare-bones retirement in 2024.
How much do you need to retire?
The table below sums up how much people need to retire, according to the Pension and Lifetime Savings Association, depending on the lifestyle they want and whether they're in a couple or not. These figures account for the expenditure required to sustain a specific lifestyle outside of London. As such, they're figures after income tax.
| Single | Couple | |
| Minimum | £14,400 | £22,400 |
| Moderate | £31,300 | £43,100 |
| Comfortable | £43,100 | £59,000 |
The PLSA splits people's retirement lifestyles into three income buckets - minimum, moderate, and comfortable. The key assumption with all three is that you have a paid-off house that you own. If you're paying a mortgage or renting, you'll need to add this to your required pension income.
What is a "minimum" retirement?
An income of at least £14,400 for a single person or £22,400 for a couple is required for the minimum retirement according to the PLSA.
For a single person, it includes an allowance of around £50 per week on groceries and £15 per fortnight on takeaways. It also includes a minimal budget of around £100 to maintain your home. It assumes you won't have a car and will rely primarily on public transport to get around. It also assumes a week-long holiday in the UK rather than abroad. Some allowance is made for birthday and Christmas gifts, but no allowance is made for helping out grandchildren. The figures and assumptions are similar for a couple. This is, essentially, frugal living with very little left for fun.
What is a "moderate" retirement?
An income of at least £31,300 for a single person or £43,100 for a couple is required for a moderate standard of living in retirement according to the PLSA. The moderate retirement lifestyle is designed to provide more financial security and flexibility.
It assumes you'll spend £55 to £100 a week on groceries, with a weekly meal out and a weekly takeaway, plus the opportunity to treat relatives to a monthly meal out. You might also have a second-hand car that you replace every 7 years, as well as a little more money to spend on taxis and public transport. You'll also be able to spend a fortnight in Europe at a mid-range all-inclusive hotel as well as up to £1,500 on clothing and shoes per person every year. There's a little more flex in the budget for household repairs and maintenance as well.
The moderate retirement lifestyle also assumes retirees will spend more on gifts, as well as up to £1,000 on supporting family members such as paying for activities for grandchildren.
What is a "comfortable" retirement?
A comfortable retirement, as defined by the PLSA, requires at least £43,100 per year for a single person and £59,000 per year for a couple. This lifestyle is designed to provide even more financial freedom and some luxuries too.
It assumes you'll spend between £70 to £130 a week on the food shop depending on whether you're single or in a couple. You'll also be able to eat out at more expensive restaurants every week, have a takeaway weekly, and even treat others to a meal once a week. Much like the moderate lifestyle, you will also be able to afford a second-hand car that you'll replace every 7 years, as well as a slightly larger allowance for public transport and travel. Larger allowances for gifting are provided, as well as £1,000 for supporting family members.
What do these numbers mean for you?
It's important to keep in mind that these are ballpark figures. For instance, many people in the UK don't make £31,300 before tax let alone having this much disposable income after they've paid their taxes, mortgage or rent, and pension contributions. The PLSA standards are designed to help you understand the kind of lifestyle you can expect to have based on aspects like home maintenance, food, transport, leisure, and giving. Your exact needs will differ and you might find that you need more or less money to live on than what the PLSA has worked out.
Do the PLSA pension income figures include the state pension?
The good news is that the PLSA pension income figures take into account the state pension. The state pension for 2024/25 is £11,500 which falls under the tax threshold and is therefore income tax free.
For most people, this won't be enough to live on based on the PLSA's figures. A couple on a minimum retirement income could survive on the state pension as they would bring in around £23,000 per year. But, it's worth keeping in mind that if one person within the couple dies, their state pension dies with them. As such, the second person would need to make up the shortfall.
The state pension age is expected to reach 67 by 2036 and will likely go up to 68 by 2046. A think tank reported recently that the UK may need to raise its state pension age to 71 by 2050 to ensure it remains sustainable as falling birth rates and a growing life expectancy lead to an ageing population. This isn't official government policy as of now, but it goes to show that, in the future, the state pension may be out of reach for many until their 70s. As such, it's worth saving for retirement and not relying entirely on the state pension for your provisions in old age.
How much do you need to save to retire?
There are so many variables that come into play when working out how much you need to save to achieve the income levels above. Some factors include:
- Whether there will still be a state pension you can claim by the time you retire
- When you want to retire and whether this is before or after the state pension age
- Whether your health allows you to work as long as you hoped
- How your investments perform over the course of your lifetime
- Whether you want to take a tax-free lump sum at retirement
- Whether you're planning on drawing down your pension or purchasing an annuity (or both)
As such, it's really hard to pinpoint the exact amount you should save to retire on a certain income. The BBC reports, however, that for a single person to achieve a minimum income, they would need to have a pension pot of £70,000 for the minimum standard, £490,000 for the moderate standard, and £790,000 for the comfortable level of retirement in addition to the state pension. This is assuming they're drawing down their pension rather than purchasing an annuity.
Everyone's circumstances differ, and ultimately there is no way to predict exactly how much your pot will be worth as your capital is at risk. Still, there are a few ways you can estimate how much you'll need to save which we explore below.
How to begin planning for retirement
If you're unsure how to begin planning for retirement, the suggestions below are a good starting point. Contributing to a workplace pension or starting a private pension if you don't have one will put you ahead of nearly a third of adults in the UK. Interactive investor reported that 28% of over-55s have no pension savings at all and will need to rely solely on the state pension in their old age. So while the PLSA figures may seem out of reach, you're certainly not alone and can make a positive impact on your future simply by making a start.
Use the Money to the Masses retirement calculator
You can use our pension calculator here to work out how much you're likely to get in retirement based on your contributions, current pension pot and employer contributions. If the figure isn't what you were hoping for, you can adjust the age you plan to retire or your contributions to see how it's likely to change. You can also use the advanced settings to adjust the rate of inflation, the rate of growth you expect, and the management fees you'd be charged by your pension manager to see how various scenarios might impact your pension pot down the line.
Use the rule of 7
The rule of 7 is one of those finger-in-the-air rules of thumb designed to simplify pension planning. Research by Fidelity suggests that if you aim to save 7 times your annual household income by the time you hit the state pension age, you should be able to comfortably maintain your current lifestyle into retirement.
Fidelity suggests that to reach this goal, you should aim to save the equivalent of your annual household income before tax before you reach 30 and twice that amount by the time you reach 40. You should then double your savings by the time you reach 50, and have six times your income saved by the time you reach 60. These may seem like lofty goals, but the hope is that compound interest and well-performing investments, in addition to employer contributions and tax relief will give you a leg up.
Use your employer's workplace pension scheme
If you're employed, auto-enrolment is one of the best ways to save for retirement. You're auto-enrolled in your workplace pension scheme and typically contribute a percentage towards your pension every month if you're over the age of 22 and make at least £10,000 a year. You and your employer need to contribute a minimum of 8% to your pension, with your employer making up at least 3% of the contributions.
This £10,000 threshold will remain frozen in 2024, which means many part-time workers may miss out unless they specifically request to be enrolled in their employer's pension scheme. If you make less than £10,000 a year but above £520 a month, you can request to join the scheme and your employer should pay the minimum contributions too. This is a good way to boost your pension savings by receiving tax relief from the government as well as contributions from your workplace.
Saving for retirement in 2024
Whether you're auto-enrolled in a workplace pension scheme or self-employed with a private pension, it's key to work out how much you need for retirement and make plans to save enough for the future. If you know a little about investing, you might even consider a self-invested personal pension (SIPP). We talk about the merits of a SIPP vs a personal pension in this article. And if you decide to opt for a SIPP, check out our article on the best and cheapest SIPPs on the market in 2024.
