If you’ve been contributing to your pension for a while, your retirement picture might be starting to come into focus. Investors who feel like they’ve made good progress in building towards their pension might even be asking when they could retire, and for some, retiring at 55 may even be a possibility.
But how much might you need if you wanted to retire today aged 55? How much would you need to save, or invest regularly, to retire at 55?
The answer depends on many variables specific to the individual, so much so that there is no definitive number. What we can do is make some fact-based estimates that may be useful for those trying to work out how realistic early retirement is.
When can I retire?
Why is ’55’ the magic number? The nominal minimum pension age is currently 55 (set to rise to 57 in 2028). This means most people can’t access money in a pension – without risking penalties – before this age. Early retirement refers to any retirement before the state pension age of 66 (if retiring in 2024) or 67 (if retiring in or after 2027).
You could retire before 55, but post retirement living expenses would need to come from other sources of income, such as wealth accumulated in ISAs or other investment products.
How much do you need to retire at 55?
Lifespan is one of the major unknowns when it comes to working out how much you may need to have saved to retire. This is where we make our first fact-based assumption to gauge what a realistic pension target could be for someone retiring at 55.
According to the Office for National Statistics, the average British woman lives to be (almost) 83, while the average British man should live to see 79. This means if you retire at 55, your pension savings would therefore need to last you around 25 years at the least. For reference, this is five years longer than the base assumption of the Nutmeg pension calculator, which assumes retirement to last 20 years.
To ask if you can afford to retire at 55 is, in effect, to ask if you can afford to live in retirement for at least 25 years.
The next fact-based assumption we need to make is how much you will spend, which depends on your habits and hobbies. The Pensions and Lifetime Savings Association (PLSA) /Loughborough University Retirement Living Standards set out three broad categories to help you estimate your annual living expenses per year in retirement:
- Minimum
- Moderate
- Comfortable
According to the PLSA, moderate expenditure for a retired individual in the UK is about £31,300 per year. A couple would need around £43,100. Moderate comfort is described as having financial freedom and some luxuries like an annual European holiday.
The PLSA has made a number of assumptions about what is needed for a minimum, moderate, or comfortable lifestyle, and these will differ from person to person. You should therefore treat the figures with caution and consider how they apply to you. That being said, they can provide a useful steer on what kind of income you might need in retirement, and therefore help you understand how much you might need to save.
Nutmeg Senior Wealth Manager, Holly Graham, has made the below table to help you estimate the pension pot you would need if you stopped working today and lived in retirement for 25 years at different expenditure levels.
source : “https://www.nutmeg.com/nutmegonomics/will-your-pension-be-big-enough-for-you-to-retire-at-55”
