How much do I need for a comfortable retirement?

Sam Slator 07/09/2021 in Equities, Income investing

Retirement is a word I’ve always associated with old people – a period of life that was in the distant future. However, as enter my late 40s, it’s something I find myself thinking about more and more, especially as I can access my pension pot in just eight years’ time (gulp).

I read recently that to live “comfortably” in retirement a couple in the UK need an annual combined income of £47,500, while a single person needs £33,000*.

What a “comfortable” retirement is depends very much on the individual but, given the current state pension is less than £10,000 a year, it’s obvious that this isn’t going to do the trick alone. In fact, it will barely cover your living expenses.

So I’ve found myself doing a lot of calculations recently, working out how much my husband and I might need to live on in retirement and checking that our savings are on track to achieve this standard of living.

It’s a four-step process I thought it might be helpful to share.

Step one: estimating my cost of living

The first thing I did was to calculate our current monthly outgoings – simply done by looking at our bank account and credit card bills. I then deducted things that I thought we wouldn’t need to spend money on in retirement.

For example, our mortgage should be paid off by the time we retire. So the mortgage payments could come off, as could the life insurance we have in place to pay off said mortgage should myself or my husband ‘pop our clogs’ earlier than expected.

I also deducted the regular savings we make and thought about taking childcare costs off too – but I decided to keep them as a proxy for any future requests coming into the bank of mum and dad….
I then thought about how many holidays we might like each year and any ‘big’ purchases we might have – from boring things like replacing a boiler to more exciting things like getting a ‘non’ family car again…

Step two: estimate my current savings

Once I’d calculated how much we needed, I looked at what we had managed to save already. Luckily most of our investments are all held on the same platform, so this was a relatively quick job.

I added up our personal pension pots, our work pension pots and our ISA investments. If you own a second property or have cash savings, these too can be added at this point, as can potential inheritances.

If you think you might have old pensions from previous employers, you can use the government’s online Pension Tracing Service to help you find them.

Step three: estimate the income from my current savings

Once I knew how much money we had managed to save, I could work out how much income that would produce if we retired today.

To do this I assumed that a pension pot of £100,000 could give an income of between £4,000 to £5,000 a year (that’s a yield of 4%-5%, which is tough in today’s low yield environment but not impossible). I then multiplied this amount by the value of our savings.

Step four: get investing!

Using the assumptions above, say you wanted to achieve that “comfortable” retirement of £47,500, you’d need a pot of money worth about £1 million. And I don’t mind sharing that we are not there yet!

But don’t be disheartened if, like me, you have a long way to go. There are a number of things you can do to help you reach your goal – or at least get within touching distance.

You can, of course, keep working past your retirement date – maybe taking on a part time roll. And don’t forget that state pension – just remember you can’t get it until you are 66 (rising to 67 in a few years’ time).

Of course, if like me you still have time on your side, you can keep investing. To make sure you stay on track, you can use an online calculator to work out much you would need to invest each month to make up your retirement ‘short fall’.

And, if you need some ideas as to what to invest that money in, here are four Elite Rated funds you might like to consider:

GQG Partners Emerging Markets Equity – investors that can tolerate taking some risk and who have time on their side might like to consider this fund, run by a manager with 25 years’ experience.

Fidelity Global Special Situations – this fund is an option for investors with a slightly lower risk tolerance who still want to potential returns from equities in a diversified portfolio.

EdenTree Responsible & Sustainable UK Equity – this fund may appeal to those who want to invest responsibly and in the home market of the UK.

M&G Episode Income – investors who want to put their money into more than just equities may like to consider this fund. The manager uses behavioural finance to find pockets of value in equities, bonds, property and alternative assets.

Explore FundCalibre’s Elite Rated funds


This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions.Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice.Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.