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How Much Do I Need To Retire UK?

how much do i need to retire uk

If you’re approaching a time in your life when you can start thinking about your retirement, then one of the chief things you’ll be concerned about is likely your future retirement income. Most workers in the UK will be part of a workplace pension scheme, contributing to their pension pot month on month by sacrificing some of their annual income to build their retirement savings through pension contributions. As a business owner, you should also have pension plans yourself.

The key, though, is making sure that you have enough pension savings to ensure you can enjoy the retirement lifestyle you have planned during all of your years of work. So just how much income will you need whilst retired to ensure you’re comfortable in retirement?

Below we’ll explore your different pension options as a business owner and consider just how much you need to retire comfortably in the UK.

What Pension Options Are There For Business Owners?

As a business owner, retirement planning is often more important for you than for your employees. You’re legally required to offer a workplace scheme to your workers, but there’s nothing saying you have to prepare your own pension pot in quite the same way.

If you’re just starting out as a business owner, but you’re already thinking ahead to retirement, then you should explore some of the following retirement options to ensure financial security and a comfortable retirement when your time finally arrives to bow out of the workplace and enjoy some well-deserved retirement rest:

Self Invested Personal Pension (SIPP)

A self invested personal pension (SIPP) has had a bit of a bad reputation in recent years as they were often mis-sold to workers without proper explanation of the financial risks involved, but if you were to research the option thoroughly and decide it was right for you, then it can work as an excellent option for business owners.

Essentially a SIPP lets you choose what you invest your pension pot in, allowing you to determine which investments are more likely to earn you money. SIPPs offer more flexibility than other pensions when it comes to what you can invest in, too.

Of course, you can build up retirement savings much quicker if you’re successful, but you can also lose money quickly if you invest in the wrong things. You can, of course, consult with an investment or financial adviser, too, but there’s still no guarantee of investment success.

You might also need to invest in an investment manager, too, which could result in higher costs just to simply run a pension of this nature.

Personal Pension

Personal pension plans are excellent for those who want to invest in their pension pot for the future, but who don’t want to be completely in charge of investment decisions.

There is still some flexibility depending on the personal pension scheme you choose, but nowhere near as much as with a SIPP, removing some of the financial risk, though not all of it can be removed, of course.

You’ll notice reduced admin tasks and costs with a personal pension as often you can simply join the scheme, sacrifice some of your annual income towards it, and let the scheme run in the background until you’re ready to retire.

Stakeholder Pension

A stakeholder pension is very similar to a personal pension, except there’s some flexibility with how much you’ll contribute to it each month. For most stakeholder pensions, you’ll set up a minimum contribution which you will stick to each month, but should you wish to increase those combinations throughout the course of the plan, you’re able to with ease.

If your business is seasonal, or you just tend to make more money at certain points, then the flexibility this pension type affords you can be excellent.

Most stakeholder pension providers also opt for lower-risk investments – you won’t make as much money here as you could by choosing investments yourself and getting in early, but the financial risk involved is much lower, affording you some protection in the long term.

Nest Pension

The Nest pension (national employment savings trust) is a low-risk workplace pension set up by the government to ensure ALL those who don’t qualify for auto-enrolment in a workplace pension scheme will still have access to a private pension.

This covers all manner of business owners and entrepreneurs, including self employed individuals, freelancers, and small business owners.

As it’s set up and ran by the government, investment decisions are usually low risk again.

Final Salary Pension

If you’re able to get a final salary pension as a business owner, then you’re able to receive a guaranteed income each month based on your length of service and earnings whilst working. It is possible to set this up with your own business, especially if you’re retiring but allowing somebody else to take over the reigns.

This option protects you in the future whilst also ensuring that the business you worked so hard to make a success of can still support you even when you’re no longer working there.

How much you’ll take each month will depend on how successful your business is, but as the current business owner, you can decide.

retiring as a business owner UK

Investments

You can, of course, control your pension income by independently investing – this could be in property, new businesses, or anything else that you personally believe will make you money long term and help provide you with a minimum income each month when retired.

This allows you to more reliably determine your projected retirement income because you’ll be in charge of it all, giving you more financial security because you’ll be calling the shots.

Whilst some investments, like rental properties, are seen as more secure, no investment is ever fully secured, so you’ll need to retire with confidence in your investments, but also be prepared for fluctuations in how much you will make each month in retirement.

A Note On State Pension

In order to receive a full state pension – as of July 2024, this is £221.20 a week – you’ll need to have 10 qualifying years making national insurance contributions. This is usually the case for most business owners anyway, but this can come from other employments too, so long as you worked for a total of 10 years in your adult life whilst making national insurance payments.

You can claim a full state pension once you reach state pension age regardless of any private pensions you may have.

When considering how much income you’ll need when you retire, consider the state pension too, as this will also be guaranteed income once you retire.

How Much Retirement Income Do I Need?

This truly depends on a few different factors:

Are Your Responsibilities Taken Care Of?

Retirement is supposed to be a time of more financial freedom. For most people this means the children have all left home, the mortgage payments are all finished, and your car is probably paid for, too.

That means you won’t have many financial commitments and responsibilities – usually.

But as retirement living standards fall across the UK due to the high cost of living, not everybody will be in that position by the time they retire – business owner or not.

Perhaps your financial responsibilities may lessen as you retire, however. You might choose to downsize to control your spending, but housing costs can still be a huge drain on retirement income, so you’ll need to work out a system that works for you based on your financial commitments.

What Lifestyle Do You Dream Of?

Pension pots will only go so far. If you want to jet away for a long weekend break every weekend in beautiful holiday destinations then you’ll clearly need more income when you retire than most.

If you’re quite happy to enjoy a quiet life at home with friends and family members, then you will obviously need less.

The best pension advice we can give is to let your pension income dictate your lifestyle, rather than the other way around, to protect you in the future.

Will You Be Retiring With A Partner?

Obviously retiring with a partner will make a difference compared to if you were retiring alone. When both of you have pensions – both state and private pensions – then you’ll clearly be able to enjoy a more comfortable retirement without having to worry too much about being able to cover all of your bills.

However, just because you’re retiring with a partner doesn’t mean it will be completely plain-sailing. You’ll still need to undertake proper retirement planning and discuss your options with your partner to ensure you will both be comfortable in retirement.

retiring with a partner income uk

Pensions And Lifetime Savings Association (PLSA) Guidance

The Pensions and Lifetime Savings Association (PLSA) offer guidance for retirees who are specifically concerned about how much they need to retire in the UK.

Below is some of their key guidance.

How Retirement Income Requirements Have Changed Over The Years

The PLSA have looked at how income requirements for retirees have changed over the years and they have pointed to the fact that retiring today leads to a more costly retirement lifestyle than in previous years.

There are many factors affecting this, but the main ones seem to be:

  • higher cost of living
  • more expectations to financially support grandchildren
  • adult children still being at home
  • not having a fully paid off mortgage

 

With this in mind, their guidance for retirement income has also changed in recent years to reflect these higher costs.

Single Person Retirement Guidance

According to the PLSA, if you’re a single person retiring in the UK, you would need:

  • £14,400 per year for a minimum retirement
  • £31,300 per year for a moderate retirement
  • £43,100 per year for a comfortable retirement

 

This income can come from investments, private pensions, state pension, and personal savings.

A minimum standard retirement income will cover your essential needs only. A moderate lifestyle will allow you to holiday once a year and enjoy a few meals out a month. A comfortable retirement will ensure you can enjoy multiple holidays and breaks and live with greater financial freedom.

Couple Retirement Guidance

The above categories for minimum, moderate, and comfortable lifestyles apply again to a couple retiring together and the PLSA argue you would need a combined income of:

  • £22,400 per year for a minimum retirement
  • £43,100 per year for a moderate retirement
  • £59,000 per year for a comfortable retirement

 

This is lower than if you were retiring alone because you will be able to split your bills more effectively as a couple, reducing your financial burden somewhat.

Early Retirement Guidance

In the UK, you can’t access your state pension until you reach state pension age which is currently 66 in 2024, but is set to rise steadily from 2026 onwards. You can, however, access your private pensions from age 55, so you could consider early retirement if you have the right pension income available.

Before you decide to take early retirement, it’s imperative that you talk with an expert financial adviser to ensure you have enough money to last your longer retirement.

How Long Will My Pension Pot Income Need To Last?

It’s important to think about how long you will be retired for. Of course, nobody can predict life expectancy, but there’s no denying that life expectancy across the UK is much longer than generations gone by.

That means today we have to factor a longer retirement into our retirement plans to ensure we spend accordingly to ensure we have enough money in later years.

Final Thoughts

With proper retirement plans, working with a financial adviser where necessary, and having confident in your early pension decisions, you can be confident that your retirement will be comfortable in the UK.

Those with private and state pensions combined will often enjoy a more comfortable retirement, but you will still need to look at how much your pensions are worth in order to work out how much you can realistically spend each year to ensure you have enough left in the pot to ensure you can enjoy all of your retirement.

Follow the guidance in our post today from the PLSA, and plan accordingly, and you ought to be able to enjoy retirement when it’s time for you to retire as a business owner.

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