You’ve been working and saving for years - but when will it be enough to actually give up full-time work and retire?
It’s a tough question, and one that’s not only asked by older people but by many younger workers too. What you really need to know is how much you need to save, and by when. If you know these things you can begin to get your finances fit for retirement.
Further down we’ll show you how to do that but, if you want a quick answer, 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.1 This assumes that the household will include two people, both of whom are entitled to a full state pension.
While a goal of seven may sound challenging, the key is to start as early as possible and aim to meet a series of savings milestones along the way. Our analysis suggests UK households aim to have at least one times their annual income by the age of 30.2 Here’s a further breakdown by age.
How much income do you need to live in retirement?
To plan your retirement target more precisely, this is the first question to answer. The reality is that you are likely to have less income to live from in retirement than in your working life. But the good news is that your living costs are likely to be lower as well.
With some luck you will have cleared any debts by the time you stop working, including having no mortgage to pay. Children will be grown up and should now need less financial support and there’s some tax advantages - no National Insurance to pay after you reach your State Pension Age, for example - and social security entitlements which means you can keep more of your money.
And remember - when you are working a proportion of your salary may be taken up by savings contributions, whether into a pension or elsewhere. These can be reduced or stopped in retirement.
It’s sometimes said that you’ll need a retirement income that is two-thirds of your pre-retirement income to maintain your standard of living. This is a good goal to have in mind but will be tough for many to reach. Trimming some spending may well be necessary.
It can be helpful to work out what your costs in retirement may be. Use a tool like Fidelity’s Retirement Calculator. It lets you enter amounts you think you’ll spend on various essential and non-essential items, like food, holidays, car running costs and entertainment.
It’s a simple tool but useful in giving you a cash estimate of the income you may need each year.
MoneyTalk podcast: The Fidelity team on their own hopes for retirement