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How much is enough to retire?

Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. 

3 rules of thumb to help you get the retirement you want

It’s a tough question to answer. None of us really know how long we’ll live or what spending demands will be placed upon us during retirement. Then there’s the performance of financial markets which will also partly determine how our investments will grow over the years leading up to retirement.

With that in mind, a target level of saving that would give you a decent standard of living in retirement would be a great thing to have. It wouldn’t make hitting your target any easier, but it would allow you to know in good time how you’re progressing and to make changes along the way to improve your chances.

At its heart, retirement is about numbers and Fidelity has worked to produce three retirement rules of thumb to help you understand how much you’ll need to enjoy a retirement that meets your expectations, including what’s a sustainable withdrawal rate at retirement. Even if you’re close to nearing retirement, there’s still time to act and improve your prospects.

Rule 1: The power of 7

Fidelity’s research found that UK households who manage to save seven times their annual household income by the age of 68 should be able to retire and maintain a similar standard of living as in their working life. This assumes that the household will include two people, both of whom are entitled to a full state pension. 

While seven is the goal for those ready to retire at 68, there are a series of savings milestones along the way for those at younger ages. Our analysis suggests UK households should aim to save at least one times their annual income by the age of 30 to begin their retirement journey, four times by the age of 50 and six times by the age of 60.

Age

Income multiple

30

x 1

40

x 2

50

x 4

60

x 6

68

x 7

Income multiples to save at each age
Read how we do our calculations

Rule 2: When 13 is a lucky number

Knowing how big your pot needs to be before you can retire is important but, in order to hit that target, it is vital to also know how much of your earnings you need to save at much younger ages.

Our research suggests that savers should be putting away at least 13% of their pre-retirement annual income before tax, each year, from the age of 25. Recent increases in the minimum auto-enrolment contribution rate mean that, for many of those who are in formal employment, at least 8% might be taken care of by saving into a workplace pension and making the most of employer matched contributions. This leaves you with a 5% shortfall to make up yourself via a savings vehicle of choice such as an ISA or personal pension.

But remember: The longer you wait before you start saving, the higher contributions have to be in order to hit your retirement target.

Starting age

Saving rate

25

13%

30

15%

35

18%

Savings rate at each age in order to retire at 68
Read how we do our calculations 

Rule 3: Limit yourself to a 5% withdrawal - and stay flexible

One of the biggest challenges people face when it comes to planning their retirement is determining how long their pension pot needs to last for. Our range of projections show that a potentially sustainable rate is to withdraw between 4% and 5%. This will vary based upon things you can’t control, such as how long you live, inflation, market returns, and things over which you have some degree of control - like your retirement age. As a rule of thumb though, aim to withdraw no more than 5% of your household savings in the first year of retirement, and then adjust that for inflation. 

Of course, every situation is different. For example, you might want to withdraw more in the early years of your retirement as you may like to spend more for example on home renovations or to travel extensively. In which case you will then need to withdraw less in later years. 

Please note that the rules of thumb and figures quoted are generic assumptions and estimations; they are not personalised and are not a replacement for professional advice. They may not represent what will actually happen in the future, because no one knows that. You can, however, use the rules of thumb as high-level guidelines to retirement planning and saving.

Read how we do our calculations

Source: Fidelity International’s retirement savings guidelines white paper, November 2018.

Important Information - Withdrawals from a pension product will not normally be possible until you reach age 55. Tax treatment depends on individual circumstances and all tax rules may change in future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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