How Much Money Do You Need for Retirement?
How Much Money Do You Need for Retirement?
Thinking about retirement might seem confusing, but it’s important to plan ahead so you can enjoy life when you stop working.
You may be wondering, “How much do I need to save to retire comfortably?” or “What kind of pensions are available?” – and our experts are here to help you find the answers.
Hansford Bell is a team of independent Chartered Financial Planners based in Tavistock, serving clients in the South West, London, and beyond. In this article, we’ll break down different types of pensions in the UK, explain how they work, and give you an idea of how much to save. By planning carefully, you’ll have a better chance of a secure retirement.
How Pensions Work
Pensions are like a savings pot for the future. Throughout your working life, you or your employer add money to your pension. This money is invested so it can grow over time. When you retire, you can start taking money from your pension to cover your living costs.
Pensions also have a tax benefit. You don’t pay tax on the money you put in, and when you retire, you can take up to 25% of your pension as a tax-free lump sum. This tax-free amount can be very useful for paying off any last expenses or treating yourself in retirement.
Types of Pensions in the UK
In the UK, there are three main kinds of pensions: the state pension, workplace pensions, and private pensions. Each is slightly different, and knowing how they work can help you decide what’s best for you.
The State Pension
The state pension is money you get from the UK government when you reach a certain age. If you’ve paid National Insurance for at least 35 years, you can receive the full amount, which is around £203.85 each week or about £10,600 a year. If you haven’t paid enough, your state pension will be less.
The state pension is a basic amount and may not be enough to live comfortably, so it’s a good idea to have other savings or pensions too.
Find out more with our beginner’s guide to the state pension >
Workplace Pensions
A workplace pension is set up by your employer. In the UK, employers must automatically enrol most employees into a pension plan. You and your employer both pay into this pension. You pay at least 5% of your earnings, and your employer adds at least 3%.
There are two main types of workplace pensions: defined benefit and defined contribution. A defined benefit pension gives you a set amount of money when you retire, based on your salary and years of work. A defined contribution pension depends on how much money is saved and how well it grows in investments. Most people today have a defined contribution pension.
Private Pensions
A private pension is one you set up yourself. It may be a useful option for those who are self-employed, don’t have a workplace pension, or just want to save more for retirement. You decide how much to save, and the money is usually invested so it can grow over time.
Private pensions also offer tax benefits as personal contributions often receive government tax relief. For example, if you put in £100, the government could add £25 (depending on individual circumstances). There are different types of private pensions, but one popular option is a Self-Invested Personal Pension (SIPP), which gives you more control over investments.
How Much Should You Save?
How much you need depends on how you want to live in retirement. Experts suggest aiming to have about two-thirds of what you earned before retiring. For example, if you earned £30,000 per year, you might want £20,000 per year in retirement.
The Pensions and Lifetime Savings Association (PLSA) suggests three types of retirement lifestyles:
- Minimum: About £12,800 a year, covering basics but no luxuries.
- Moderate: About £23,300 a year, allowing for some extras and small treats.
- Comfortable: About £37,300 a year, with more options for travel and fun.
However, you goal may be different, so it’s important to keep your lifestyle in mind when planning your savings. Many people aim to save between 10-15% of their income throughout their working life. Starting earlier can mean lower monthly contributions. For instance, someone starting at 25 might need to save around £300 each month, whereas starting at 45 could require saving closer to £900 per month to reach the same goal.
At Hansford Bell, we can help you find the path that’s right for you and your lifestyle, helping you live comfortably in your golden years. Find out more about our retirement financial services.
Estate Planning and Funeral Plans
As you plan for retirement, it’s also smart to think about what happens to your savings after you pass away. Estate planning helps you make sure your money goes to the people you choose. A funeral plan can help cover funeral costs, so your family isn’t left with unexpected expenses. Taking care of these plans can provide peace of mind for you and your loved ones.
Find out more about estate and tax planning from Hansford Bell >
How Hansford Bell can Help You Plan Your Retirement Better
Planning for retirement is an important step toward a secure and happy future. From state pensions to workplace and private pensions, there are many options to explore. Think about what lifestyle you want in retirement and aim to save around two-thirds of your current income to achieve it. Estate planning and funeral plans are also helpful to consider for peace of mind.
Planning for retirement and choosing the right pensions can feel complicated. A financial planner, like Hansford Bell, can guide you through each step. We can help you understand your options, make the most of your money, and plan for the future. We stay updated on the latest rules and can help you with everything from pension plans to estate planning. Working with us can make retirement planning easier and give you confidence in your future. Contact us today to get started.
Find out strategies for planning an early retirement >
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Disclaimer: this article is for informational purposes only and does not constitute financial advice.
Hansford Bell Financial Planning Ltd is Authorised and Regulated by the Financial Conduct Authority: number 482388.
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