How much should I spend on retirement?

People get frightened by this question – they shouldn’t! The simple answer is that we all pay into a national pension scheme through national insurance and you can find out what you’re likely to get from the State we completing a simple online form using this link. Finding out how much you get from the State is the first stage in answering the question – how much should I spend?


For most people, the thought of being reliant on state benefits in what will be “the longest holiday of our lives”, isn’t thrilling. Most of us will want to spend some of what we earn on our later years and auto-enrolment will mean that it’s a whole lot easier for us in years to come.

In case you don’t know about auto-enrolment, it’s the way money is automatically taken from your pay and put into a workplace pension chosen by your employer. The amount that goes in depends on your earnings and is generally around 3% of what you earn above £5,500.

For many people, the state benefits combined with the amount they save through auto-enrolment will be all they get from pensions. But will it be enough?

When we talk to groups of employees and give guidance sessions on retirement savings, we get people to think of their financial future in very simple ways. Understand your debt and aim to get yourself “debt-free” in later years. It’s nice to think of retirement as a time when you don’t have too many financial obligations. The less debt you have in retirement, the less need you’ll have for an income


When you’ve got your debt sorted, it’s easier to understand what you’ll need to live on. One way of looking at this is as a “the amount of income you’ll have to replace from earnings to savings”. The old rule was that you needed around 2/3 of your final salary from private pensions (with the rest coming from the state). But things have moved on a little since the fifties and sixties when company pensions started up. For starters, we tend to work longer and when we retire we often continue to do some paid work. That’s good because it means the amount of income we need to replace may be less than 2/3’s.

The not such good news is that while we may not need to replace all our income (especially if we continue to work and are debt free), the cost of replacing income is a lot higher than it used to be. This is because we are living a lot longer than we used to. Most people don’t think they will live as long as they do. As actuaries, we are always asking people to understand the impact of living longer- income has to be paid longer- savings don’t go as far.

This is one of the reasons that pensions have become so expensive to buy. If you’d like to find out how long you’re likely to live, you can press this link which will take you to our Death Predictor. You’ll be surprised at how long it will tell you – you’re going to live!

So once you’ve worked out how much income you need in retirement (to replace earned income with income from savings), then you can start to work out how much you should be saving. Please don’t be frightened into thinking you need to be saving huge amounts, saving regularly over time can mean you can build up a decent capital reservoir which you can either exchange for a pension (an annuity) or drawdown as an income while keeping access to your capital.

Age UK have a brilliant website which gives free and impartial advice on what you might get from your pension savings. We find that people we talk to, trust this site because it’s independent of any pension providers and doesn’t link you to any commercial provider of financial adviser. There’s plenty of time to go to commercial sites once you’ve got the basics sorted – so try their pages here and then move on.

You can get a pretty good idea of what you need from the modellers on the Age UK site and a good idea of what you’ll have to save to meet your needs. But to get the most from your savings – in terms of investment, tax-planning and the complicated choices awaiting you at retirement, you’ll probably need to pay for someone to advise you.

I can’t advise you, and you probably wouldn’t pay me if I could. But I can give you a very simple answer to the question I posed in the title of this blog. The amount you should pay into your pension scheme is “as much as you can!”

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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