Retiring at 65: How Much Do You Really Need?
Are you nearing the age of retirement? For many of us, being able to spend our golden years relaxing with friends and family is a goal we’d like to start enjoying as soon as possible. However, what is the average pension pot at 65 in the UK, and how much do you really need to enjoy a comfortable and financially secure retirement?
That is one of the most common questions we’re asked here at Fairview Financial Management, which is why we thought we would take a closer look at the average pension pot in the UK, how much you need to retire at 65, and how to create a reliable retirement plan.
What is the average pension pot at 65 in the UK?
According to research undertaken by the Living Wage Foundation and the Living Pension Steering Group, the average annual income needed in retirement is £19,300. However, that figure can differ dramatically depending on your personal circumstances, additional income (such as state pension or final salary pensions), savings habits, and the region in which you live.
There are several figures quoted depending on the source, but the average pension pot at 65 in the UK is somewhere around £190,000. Would relying on that figure be enough to let you retire comfortably and live the life that you want to, though?
How much do you need to retire at 65?
While that figure provided by the Living Wage Foundation is under the average pension pot in the UK, that is only enough to meet your basic needs. If you are retiring at 65, you will want to live and enjoy your life, which is why a rough rule is to ensure you have around twenty times your annual expenses saved.
For example, if your annual outgoings are £25,000, then you will want £500,000 across your pension, investments and personal savings. When calculating that figure, don’t forget to factor in your state pension, which is currently just over £11,500.
Exactly how much you need to retire, however, will depend on your personal circumstances, which is why we recommend booking a retirement consultation with our team. We’ll be able to provide you with personalised advice that will help you answer the question, “Can I retire at 65?”
We’ll help you evaluate your current expenses; the non-negotiable basics like heating and eating, but also discretionary spending on things like holidays and meals out, and also how they will change when you retire. For example, the money you might save on no longer commuting could go toward a holiday fund or hobbies.
Here’s a rough breakdown on how much you’ll need annually – remember, this is only a guide and doesn’t take into account your personal situation.
| Basic | Moderate | Comfortable | |
| Amount required | £19,300 | £31,300 | £43,100 |
| Housing | £100 DIY and maintenance | £500 a year maintenance, £300 contingency | £600 a year maintenance, new kitchen every ten years. |
| Groceries | £50 a week on groceries, £55 a month on takeaways and eating out | £55 a week on groceries, £40 a week on eating out and takeaways, £100 a month taking others out for a meal. | £70 a week on groceries, £60 a week on eating out and takeaways, £100 a month taking others out. |
| Transport | No car, £10 on taxis, £100 annual train pass | Small car replaced every seven years, £20 a month on taxis, £100 per year on train pass. | Small car replaced every five years, £20 a month on taxis, £200 on rail fares. |
| Holidays | Basic TV and broadband, week holiday in the UK | Fortnight 3* all-inclusive holiday, weekend break in the UK, and basic TV, broadband and streaming services. | A fortnight 4* holiday with spending money. Weekend breaks in the UK and extensive TV, streaming and broadband subscriptions. |
| Clothing & Personal | Up to £630 for clothing and personal items | Up to £1,200 annually | Up to £1,500 annually |
| Gifting | £50 to charity a year, £20 for family birthday and Christmas presents | £200 to charity, £30 on presents, and up to £1,000 supporting family. | £25 a month to charity, £50 for birthday presents, and £1,000 supporting family. |
*These figures are taken from Standard Life and the Pensions and Lifetime Savings Association.
How can you fund your income when retiring at 65?
Now you know the average pension pot at 65 in the UK and a rough outline of the annual costs you will face, where will your required income come from? There are several streams you will have:
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State pension
The first source of income will be your UK state pension. This is currently set at £221.20 a week as long as you have contributed enough to National Insurance over the years to qualify for the full amount.
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Personal pensions
Your primary source of income will be your private or workplace pension. These savings can be accessed as a lump sum, annuity, or via drawdown, which allows you to withdraw money gradually while leaving the rest invested.
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Investments and savings
Another source of income can come from any investments that you have made, such as stocks and shares ISAs, rental income from property investments, or fixed deposits and bonds.
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Consultancy
While you might be asking yourself, “Can I retire at 65?” it’s important to remember many people choose to keep busy by offering consulting services or working part-time. This allows you the flexibility to enjoy your retirement while staying active.
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Annuities
Buying an annuity with a portion of your pension provides a guaranteed income for life. While less flexible, it does remove any investment risk.
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Equity release
If you own a property, you could consider equity release to unlock the value in your property. This method does reduce your estate’s value, so should be considered carefully.
It is important to balance your retirement income to ensure it aligns with the lifestyle you want. Working with our independent financial advisors will help you optimise your withdrawal strategies and minimise any tax burden.
Creating a retirement income plan
When you have understood your income sources and the annual amount you need, the next step is to create your retirement plan. This is a simple approach, and to begin, you should thoroughly calculate all of your expenses, breaking them down into fixed costs (those that remain the same each month) and variable costs (dining out, travel, etc.). You should also make sure that you are setting aside funds for emergency costs, such as home repairs.
With that calculation and a clear understanding of your annual income, you will be able to create a plan that ensures you are able to enjoy your retirement. However, this approach does not account for the many costs and surprises of retirement, such as taxes, inflation or big expenses. That is why you should consider implementing cash flow modelling. This approach gives you a much more detailed insight into your finances, giving you the confidence to answer, “Can I retire at 65?”.
Do you have enough to retire at 65?
Considering the average pension pot at 65 in the UK, and using the calculations above to factor in your personal needs, you will be able to know whether you can retire comfortably or not. If you have enough, then don’t delay it and enjoy your golden years!
However, if you are concerned you might not have enough, then don’t worry. There are still various approaches you can take to boost your savings, such as:
- Adjusting your savings, putting aside more each month into your retirement fund and cutting back on expenses.
- Working for a few more years, aiming to retire at 70 instead.
- Adjusting your retirement expectations to match your income.
- Look to invest in options that provide better returns.
- Consider equity release to unlock the potential in your home.
If you are not sure whether you have enough or are confused about the best strategy to manage your money, then an independent financial advisor will be able to help you. It is also important to regularly review your pension and income sources, as this will allow you to adjust your expenses accordingly to ensure you have funds throughout your retirement.
Frequently Asked Questions
What is the needed pension pot at 65 in the UK?
The average pension pot in the UK needed to live basically should provide £19,300 a year to cover all expenses.
Can I retire at 65 with £250,000?
Yes, retiring at 65 with a pension pot of £250,000 is entirely possible, especially when combined with the State Pension. However, this will require a modest lifestyle and may not provide you with everything you need to live the life you want.
How much does a £300,000 pension pot provide annually?
A pension pot worth £300,000 will provide an annual income between £12,000 and £15,000, depending on how you are utilising it (for example, annuity or drawdown). This will be in addition to the state pension you received.
How can I ensure a comfortable retirement?
To ensure a comfortable lifestyle in your golden years, you should aim to have a savings pot of twenty times your annual expenses, as well as a diversified source of income. Consider working with a professional, independent financial adviser to accurately plan for your retirement.
Need help with your retirement planning?
No matter whether you are close to retiring and need some help with your finances, or you are looking to retire at 65, our team at Fairview Financial Management are here for you! As experienced IFAs, we can help you align your money with what’s most important to you, giving you the confidence to retire comfortably and live the life you want to.
Ready to learn more? Get in touch today to book an initial meeting!
