It may be a long way off, or only a few years away, but one day you’re going to retire and, at this point, the amount of retirement income you will have is going to be the fundamental deciding factor of how you get to live your life.
Every day, our expert team of independent financial advisers at PIL Southampton is helping our clients to plan for their retirement. In this article, we share helpful guidance about planning for your retirement income.
It’s never too soon to start planning for your retirement; the earlier you start saving into a pension the more your pot will grow by the time you reach pension age. Your best incentive is to think about how you’re going to feel if you reach retirement age only to be worrying about making ends meet and having little or no financial freedom to live the life you would ideally like to.
The State Pension is a contributory, non-means tested benefit paid to individuals who have built up sufficient qualifying National Insurance years (at least 10 years for any entitlement, and 35 years for the full State Pension. It is there to ensure you receive money to live on once you have reached the State Pension age which is rising to 67 between 2026 and 2028.
You only receive the full State Pension if you have paid enough National Insurance contributions. You can check your status on the government’s website here, to make sure you’re on track to receive your full State Pension entitlement.
In the 2026/27 tax year, someone with full State Pension entitlement receives £241.30 per week. For most people, that won’t be enough to cover their bills and fund their lifestyle, so it’s crucial that you have your own pension provisions in place too.
This free budget planner tool can help you to work out how much you’ve got and how much you’ll need.
There’s no doubt that having enough money to live on, and living the lifestyle you choose, is hugely important for your wellbeing and happiness. Worrying about money is incredibly stressful and can have a significantly negative impact on your state of mind.
The Retirement Living Standards (RLS) are developed by the Pensions and Lifetime Savings Association (PLSA) in collaboration with Loughborough University. They aim to help people to understand the costs associated with different retirement lifestyles, providing frameworks for people to visualise the kind of lifestyle they will be able to afford in retirement, based on their current pension provision.
These living standards are categorised into three levels – minimum, moderate and comfortable, and they focus on expenditure rather than income. For example, do you like eating out in restaurants every week or going on a cruise every year? Maybe you’re happy at home and your spending is mostly just the basic bills.
On the Retirement Living Standard’s website, you can review your lifestyle scenarios as either a one-person household or a two-person household.
You can also mix and match elements across the minimum, moderate and comfortable sections, to more closely reflect your expected desired lifestyle.
On the scale of minimum to comfortable, a single person would need £13,000-£44,000 retirement income per annum. This is based on the latest figures from the Retirement Living Standard’s research. According to their calculations, this means that, in addition to your State Pension, you would need to build a pension pot of between £540,000-£800,000 by the time you retire, to then use to purchase an annuity with your savings, if you wish to live a ‘comfortable’ lifestyle. The actual amount required will depend on the level of income required after taking the value of your state pension benefit into account as well as prevailing annuity rates, the state of your health and your age when applying for an annuity.
Every person’s circumstances are individual. As well as your lifestyle choices, how much you’ll need will also depend on other factors like whether you’re still paying a mortgage or rent and whether you have any dependents.
On the scale of minimum to comfortable, a two-person household would need £22,000-£60,000 retirement income per annum. This is based on the latest figures from the Retirement Living Standard’s research. According to their calculations, this means that, in addition to your State Pension, you would need to build a pension pot of between £600,000-£920,000 by the time you retire, to then use to purchase an annuity with your savings, if you wish to live a ‘comfortable’ lifestyle.
There are several ways you can boost your retirement income if you’re still working. If you’re employed and you’re part of a workplace pension, you might be able to top your pension up with more than the standard contribution – this is called ‘Additional Voluntary Contributions’ (AVCs). And the matching scheme that many employers run, where they increase their contributions when you do, means that your savings can grow even more.
You can also boost your pension by adding lump-sum top ups, for example if you receive an inheritance or a bonus. These additions may benefit from tax relief, subject to HMRC limits.
As well as adding to your pension, you can also increase your retirement income by investing in tax-efficient products like ISAs.
Our friendly team of independent financial advisers always has your best interests at heart. They will take the time to get to know you and your individual circumstances, so that they can give you helpful advice and guidance to help you attain the retirement income you’ll need to fund the lifestyle you want.
You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.