How much money do I need to retire comfortably?

High inflation and rising taxes are making retirement more expensive.

The cost of a comfortable retirement has jumped again, according to new data from Pensions UK, meaning most people will need a much larger pension pot than originally anticipated if they want to maintain their lifestyle after giving up work.

Pensions UK regularly puts out figures showing how much it costs to fund a minimum, moderate and comfortable level of retirement based on everyday and one-off costs.

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The figures show that increased costs across spending categories such as food, essential household bills and transport as well as social activities and hobbies have pushed up the amount needed to fund a reasonable retirement.

The annual standards, calculated by the Centre for Research in Social Policy at Loughborough University, now show that the cost of a comfortable retirement has increased from £43,900 for a single person to £45,400, while couples require £62,700 compared with £60,600 previously.

A moderate retirement lifestyle now costs £32,700 for one person and £45,400 for two.

Meanwhile, the cost of a minimum ‘basic’ retirement lifestyle is now at £13,900 a year for a one-person household and £22,500 for a two-person household.

The figures don’t include pension costs, so could be higher if households still have a mortgage in retirement.

The data highlights that the state pension won’t be enough even for the basic level of retirement, meaning people need to rely on their pension savings.

Pensions UK said it expects around 82% of the working population to reach the minimum standard of living in retirement. However, this falls to just 23% reaching a moderate standard and 9% reaching a comfortable level.

It comes as the Pensions Commission recently warned that people aren’t saving enough into their pension, even with auto-enrolment.

Zoe Alexander, executive director of policy and advocacy at Pensions UK, said: “The latest update to the Retirement Living Standards underlines a clear reality for many people, today’s saving levels will not be enough for the retirement they expect.

“That is out of step with what people expect for their future. Without action, too many risk facing a cliff-edge drop in income when they stop work. The Government is right to be considering whether minimum contributions need to rise through the work of the Pensions Commission.”

How much does a 'comfortable' retirement cost?

• A comfortable retirement for one person, after tax, costs around £45,400 a year, Pensions UK says
• For a couple, a comfortable retirement after tax costs around £62,700 a year
• A comfortable retirement includes annual luxuries such as a two-week trip abroad

The amount you will need to retire comfortably will depend on your own lifestyle and spending needs.

The cost of a comfortable retirement allows for spending on extra luxuries such as regular beauty treatments, theatre trips and two weeks of holiday in Europe a year as well as three long-weekend breaks.

The research shows that the cost of enjoying the finer things in retirement has risen from £43,900 a year to £45,400 for a single person household and from £60,600 to £62,700 a year for a two-person household.

This is after tax though, so you would actually need to earn at least £54,720 gross.

How much does a 'moderate' retirement cost?

• After tax, a moderate retirement costs around £32,700 for one person
• For a couple, a moderate retirement costs around £45,400 annually, after tax
• A moderate retirement permits fewer luxuries and shorter holidays

A moderate retirement is based on eating out sometimes, running a small second-hand car, having a two week holiday in the Med and a long weekend off-peak break in the UK.

A moderate retirement lifestyle has increased from £31,700 to £32,700 for one person and from £43,900 to £45,400 for two, according to Pensions UK.

A single person would need to earn £37,732 before tax to achieve this standard.

How much does a 'basic' retirement cost? 

• A basic retirement costs £13,900 annually or £22,500 for a couple, after tax
• While a comfortable retirement includes luxuries, this is a no-frills lifestyle
• A basic retirement includes cheap leisure activities in the UK, but no foreign travel

A no frills type of retirement still costs £13,900 a year – this is up from £13,400 previously.

For a couple, this has increased to £22,500 from £21,600.

Source: Pensions UK

How much will you need in your pension pot to fund your retirement lifestyle?

• The UK state pension will cover many but not all of the costs of a basic retirement
• Comfortable retirements and moderate retirements require substantial pensions
• To raise your chances of a comfortable retirement, start saving as early as possible

Pensions UK estimates that a single person would need a pension pot worth between £560,000 and £845,000 to achieve a comfortable retirement through a typical annuity.

Couples would need £315,000 to £470,000 each.

This assumes taking a full state pension.

Even a moderate retirement requires a big pension pot, at between £335,000 and £505,000 for one person and £170,000 to £255,000 for a couple.

If you are happy with a minimum level, then a state pension and a pot worth £23,000 to £34,000 could suffice for a single person, according to the Pensions UK research.

A couple could combine their state pension without needing any further savings for a basic level of retirement.

Separate analysis from Quilter suggests a single person would need a pension pot of £691,000 to meet the standards for a comfortable retirement.

This falls to £413,000 for a moderate lifestyle, while the minimum standard can largely be met by the state pension alone, with only limited additional savings required.

For couples, the cost is lower per person due to shared expenses but still requires substantial savings. To reach a comfortable standard of living, each partner would need a pension pot of £389,000, while a moderate lifestyle would require £208,000 each, Quilter says.

This is based on a 6.1% escalating annuity.

Jon Greer, head of retirement policy at Quilter, said: “The current policy landscape, including pensions becoming subject to inheritance tax from April 2027, changes to salary sacrifice, and the never-ending threat of further pension tax changes at each budget, have made things increasingly confusing for savers.

"This may make pensions seem less attractive, but pensions should still be viewed as an incredibly efficient way to save for retirement and these figures bring into sharp focus just how important it is that people take ownership of their savings.

“Assessing both how much you are saving and how you structure and use your pension and other assets is vital. Seeking professional financial advice can help ensure your savings are working as efficiently as possible and that you are on track to achieve the retirement you want.”

Craig Rickman, personal finance expert at interactive investor, highlights that the Retirement Living Standards only offer steer on what secures a minimum, moderate, or comfortable retirement.

He added: “The level of income and/or savings individuals and couples need will depend on their personal goals and spending habits.

“A comfortable retirement will mean different things to different people; Pension UK’s annual calculations can provide a useful starting point, but the key is to think about the lifestyle you aspire to once you leave the workforce, work out the amount you need to save, and start planning as early as you can."