Saving for retirement is a bit like aiming at a moving target. How much should you be saving right now? How do you know if you’ll have enough? These are difficult questions to answer, but with a solid retirement plan in place it is possible to reach your goal.


Retirement. Financial freedom. Enough money to stop working and spend your time as you please. These are the years we all look forward to. To successfully plan for your retirement, you must know how much money you will need and then work towards achieving that goal. One of the biggest mistakes people make is underestimating how much they will need to live a comfortable lifestyle. But how much is enough? Unfortunately, there is no definitive answer because your circumstances are always changing.

People are living longer

According to a report released in 2019 by the Office for National Statistics, life expectancy at age 65 years was a further 18.6 years for males and 21.0 years for females – and it’s continuing to increase.

To determine how much money you need to retire, you must estimate your retirement expenses. This will give you a figure to work with and from there you will continue to adjust your retirement plan to meet your goal.

Where to start

You’ll need to start by looking at your current budget. While some of your expenses won’t form part of your expenses in retirement, it will give you an idea of how you spend your money. Once you’ve worked out your budget, you’ll need to think about any potential expenses you may have in retirement that you don't have now. Ask yourself the following questions.

Will you have a mortgage?

You’ll need to calculate if you’ll still have a mortgage to pay off when you retire. Look at how much you currently owe and when you expect to have your home paid off.

Will you have debt?

This is your credit card debt, car loans and any other loans you may have. You’ll need to determine how long it will take you to pay these off and whether they will still be part of your expenses in retirement.

What are your home expenses?

Even if you no longer have a mortgage, there will still be costs associated with owning a home. Home insurance, taxes, maintenance costs, etc.

Will you have to support your children financially after you retire?

You’ll need to consider whether you’ll be paying for their tertiary education and possibly continuing to support them while they find their feet. Will they borrow money to pay for a car, house or wedding? These will also form part of your retirement expenses.

Will you support your parents or any other family members?

Do you or your spouse have elderly parents? They could need physical or financial assistance in their old age. If so, you should prepare to meet those needs.

Will you want to travel abroad for vacations or to visit family?

If overseas trips are part of your retirement plan, you’ll need to ensure that you prepare for this.

Determining how much you’ll need

There are different ways to work out how much you’ll need to retire and an experienced financial advisor would be able to give you an approximate figure by using a cashflow planning tool.

AJ Bell’s research team revealed in 2019 that in order to achieve an annual income of £20,000, a pension fund of £447,000 was needed to retire at age 65 (this assumes 5% investment returns after charges, income inflation linked at 2% a year and the pension fund running out at age 100).

Understanding your pension

The income you’ll receive from your pension is an important factor in achieving this goal and must be considered.

State pension: Do you qualify?

To be eligible for a UK state pension, you need to have been employed or self-employed in the UK and/or have made National Insurance contributions for a certain minimum number of years.

You will need at least 10 qualifying years out of 35 on your National Insurance record to get any state pension. They do not have to be 10 qualifying years in a row. For those 10 years, the following criteria must be met:

  • You worked and paid National Insurance contributions
  • You received National Insurance credits because you were either unemployed, ill or a parent or carer
  • You paid voluntary National Insurance contributions

How much you’ll get

Currently, the state pension is £175.20 per week. However, the actual amount you’ll get depends on your National Insurance record. The amount can be higher if you delay taking your pension by electing to defer your state pension.

Personal pension and workplace pension: Tax benefits

Pensions are a great tax-efficient form of investment. The contributions that you pay into your pension will benefit from tax relief and aren’t subject to tax while they’re invested in your pension pot.

If you have a defined contribution pension scheme, you can generally take up to 25% of your pension pot as a tax-free lump sum after the age of 55.

If you have a defined benefit workplace pension scheme, the tax-free lump sum you can receive at retirement, and the pension that you receive during retirement, is based on:

  • How your benefits build up
  • The length of your pensionable salary
  • Your final pensionable salary

You will be liable for income tax at a marginal rate for any pension paid to you.

Annuity vs drawdown: Which is right for you

When you reach retirement, you’ll need to make a decision as to how you would like your pension to be paid out to you. You can either take an annuity or a drawdown. I have excluded full lumpsum withdrawal as this can have detrimental tax impact and financial advice should be received before considering this option.

What is an annuity?

You can choose to place your funds in an annuity, which provides a secure and guaranteed income every month for life. The annuity is taken with an insurance company and is based on their assessment of your life expectancy.

What is an income drawdown?

This option allows you to keep your pension invested and withdraw a certain amount from your pot on a regular basis. The income you take will be taxed in the same way as employment income. A key benefit of a drawdown is that the money that is left after you pass away could be passed on to your beneficiaries.

Let’s compare the two pension options.





25% tax-free

25% tax-free


Guaranteed income

Vulnerable to market performance, which will affect the income you receive


Income amounts and payments frequency are fixed

You can adjust the amount and frequency of your withdrawals


Subject to the type of annuity: single-life or joint-life

Beneficiaries receive pension tax-free or as cash, depending on your age

The benefit of compound interest over time

Compound interest can be highly beneficial for pension savers as it builds and grows over time. Interest gets paid into your pension plan and is then reinvested again. This means that the longer you leave money in your pension, the more compound interest it’ll generate and the larger your pot could become.

To take advantage of this, it’s important to start saving early and to hold off from drawing from your pension for as long as possible.

The analysis completed by AJ Bell warned that in order to achieve the target pot size of £447,000 at age 65, a 25-year-old would need to save £235 per month. Should this be delayed by 10 years and you started saving by 35 then the monthly saving figure would almost double to £428 per month and for a 45-year-old it would reach £859 a month.

What is clear from the above is that starting early is important to achieving your retirement goals. However, if you have left it late, you can still achieve your goals, but this will certainly squeeze your cashflow in your later years.

What to focus on now

The value your pension pot will reach is based on four principals:

  • The amount you contribute
  • How long you contribute for
  • The performance of your fund
  • The costs

As you are unable to guarantee the performance of your fund, it is important that you focus on keeping your costs low, starting as early as possible and putting in as much as you can. The more money you contribute into your pension, the better the chance of achieving your retirement goals and possibly earlier than expected.

When it comes to planning for retirement, it’s vitally important to think realistically about your goals and what is possible to achieve. This will help you understand whether your current financial plan is putting you on the right course to have a retirement fund that allows you to live the life you want.

Successful retirement planning starts early and should be adjusted as your financial goals and time horizons change. As a truly international business, we are able to provide you with a tailored solution for long-term financial success. Get in touch with our expert advisors on +44 (0) 20 7759 7519 or at

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