Investment planning, Protecting, Retirement

How much money do I need to retire at 50, 55, or 60?

17 October 2023

Planning for retirement is crucial, even if it seems like a long way off. It’s never too early to start the planning process, particularly if you’re keen to retire early – at 50, 55, or 60. 

One of the first steps in the retirement planning process is to establish a rough estimate of how much money you’ll need to retire. Once you have a ‘retirement number’ in mind, you can put a plan in place to achieve it. 

Working out how much money you need to retire has its challenges, however. That’s because there are a number of variables to consider. With that in mind, here are some things to think about when planning an early retirement.

How much income will you need in retirement? 

The first thing to consider is the lifestyle you’d like to enjoy when you finish work. The income you’ll require on an annual basis to support this lifestyle will impact how much money you need to retire. 

One popular retirement income calculation is the ‘50-70’ rule. This suggests that you should aim for an annual income of 50-70% of your pre-retirement income. So, for example, if your pre-retirement income is £100,000 per year, the rule suggests that you should aim for a retirement income of £50,000 to £70,000 per year. 

Bear in mind that you may still require substantial income later in life. In the UK, average fees for a residential care home currently range from £27,000 to £39,000. Costs increase to £35,000 to £55,000 per year if nursing care is required1. These costs – which are constantly rising – should be factored into your retirement planning. 

What’s your life expectancy?

The next thing to think about is your life expectancy2. This is another key determinant of how much money you need to retire. If you plan to retire at 50 and expect to live to 85, you’ll need to save enough to support yourself for 35 years. 

Over the last few decades, life expectancy in the UK has increased significantly. Just 20 years ago, average life expectancy was around 76 for males and 80 for females. Today, it’s around 79 for males and 83 for females. Looking ahead, this trend is expected to continue, and by 2030, living to 90 could become the norm in affluent areas of the country. 

How will you invest in retirement? 

The way you plan to invest your money in retirement is another variable to consider when calculating how much money you’ll need to retire. Don’t forget that if you retire early, you can still potentially grow your wealth for several decades. The returns you hope to generate later in life will affect the amount you need to save in the lead up to retirement. 

Bear in mind that bonds – which have traditionally been a staple in retirement portfolios due to the fact that they’re lower risk than stocks and pay regular income – currently offer very low returns. To protect your retirement savings against inflation, you may have to consider other asset classes such as alternative assets. 

Your tax situation is also important when it comes to how much money you need to retire. If your retirement assets are held in tax-efficient vehicles such as pensions or ISAs, you may need to save less to achieve your desired lifestyle. That’s because your tax liabilities in retirement are likely to be lower. 

Taking advantage of annual allowances such as the £20,000 annual ISA allowance while you’re still working can help you get to your retirement number faster. The difference between pre-tax and post-tax investment returns can be significant, especially for high earners. 

When can you access your pension

Finally, you need to consider access to your pension. In the UK, the age at which you can access your personal pension is currently 55. However, this is set to rise to 573 in 2028. If you plan to retire before this, you will need to have access to other retirement savings. 

How much money do you need to retire? 

Once you have considered all of these variables, you can determine how much money you need to retire. 

A retirement calculator can be a good place to start. This can give you a ballpark figure of how much you’ll need to save to achieve a certain level of income in retirement and show you whether you are on track to achieve your financial goals. 

It’s then a smart idea to talk to a financial adviser, who will be able to take a close look at your specific situation and factor your personal circumstances into your retirement calculations. An adviser can also help you put a plan in place to achieve your retirement goals. This will incorporate saving, investing, tax planning, and estate planning. 

By working with a trusted adviser, you can create a plan that is unique to you and designed to help you achieve your specific retirement goals. A carefully crafted plan, which can be reviewed on a regular basis, will give you a better understanding of how much money you need to achieve your dream retirement, and provide a roadmap that shows you how to get there. 

To find out more about how Morrinson Wealth can help you plan for retirement, or to establish how much money you need to retire, get in touch.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.

1Care home fees and costs: How much do you pay?, Carehome.co.uk, accessed August 2022

2Life expectancy calculator, ONS, accessed August 2022

3Increasing Normal Minimum Pension Age, Gov.uk, accessed August 2022

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