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Retirement planning is one of the most important aspects of financial wellbeing, yet many people struggle to answer a simple question: how much do I actually need to retire? In Episode 5 of the Retire Well with Wealth of Advice podcast, Chartered Financial Planners Joe and Matthew explore how to calculate your retirement number, assess income streams, and plan for lifestyle goals in retirement.
The first step is to define your retirement goals. Retirement is more than just income; it’s about lifestyle. Consider:
• Big-ticket items such as a holiday home or car
• Outstanding debt
• Whether you want to support children or other family members
Joe and Matthew recommend looking at your retirement needs through the lens of the Retirement Living Standards, which suggest the following annual incomes for a single retiree:
• Minimum: £22,000
• Moderate: £43,000
• Comfortable: £59,000
The Department for Work and Pensions (DWP) also suggests saving between 50% and 80% of your salary to maintain your standard of living in retirement.
Matthew highlights that the more guaranteed income you have, such as a Defined Benefit pension or annuity, the less you may need to accumulate in a personal pension pot.
Once you understand your goals, you can start to calculate your retirement number:
• Assess current income and identify what will fall away in retirement, such as bonuses or employment perks.
• Estimate capital expenditure for major purchases or one-off costs in retirement.
• Identify guaranteed income streams, including State Pension, annuities, or DB pensions.
• Use tools such as the Money Helper Pension Calculator or the Retirement Income Calculator to find any gap between your expected income and desired lifestyle.
• Consider the timing of retirement and how long your income needs to last.
Joe notes that the commonly cited 4% withdrawal rate can be a useful starting point, but it is affected by market fluctuations, changes in expenditure, and personal circumstances. A flexible, tailored approach is usually more reliable than a simple rule of thumb.
Your retirement income is likely to come from multiple sources. Planning should include:
• State Pension: Check your entitlement and age of receipt.
• Defined Contribution pensions: Pot size, investment performance, and accessibility.
• Defined Benefit pensions: Guaranteed income and any death benefits for dependents.
• Annuities or other guaranteed income: Single life vs joint life, or guaranteed term options.
• Other savings and investments: ISAs, bonds, or property income.
Matthew emphasises that understanding your mix of income streams helps you work out how much risk you can take with invested pots and how much you may need to save.
The key to a comfortable retirement is starting your planning as early as possible. Assessing your goals, income streams, and potential gaps will allow you to make informed decisions about saving, investing, and when to retire.
Using calculators and professional guidance can help you define a realistic retirement number, giving you confidence that you can achieve the lifestyle you want.
Start thinking about your retirement goals today. Wealth of Advice can help you review your income streams, calculate your retirement number, and put a plan in place to achieve the lifestyle you desire. Book a consultation with our Chartered Financial Planners to take control of your retirement planning.
If you want a better view of what your future could be, we'll have a chat and work out if we make a good fit for you and your financial picture.
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