When Can I Retire?
Updated: Sep 19
When can I retire is a question frequently asked by many, and to answer that question, we need to ask another. How long will it take you to save up enough money to retire comfortably?
It’s tough to say exactly when this will happen, but you can figure out what kind of life you can expect once you know how much money is in your pension pot.
Do You Have £1 Million Saved Up Yet?
If you’re thinking of retirement, you might be wondering how much money you need to save to feel comfortable. According to Fidelity Investments, a comfortable retirement requires having £1 million in savings.
And while £1 million sounds like a lot of money, as long as you start saving early and invest wisely, it’s possible to reach that goal.
However, many workers are worried they won’t have enough saved up before they retire. In fact, one-third of workers believe they will never be able to retire or will not do so until they are at least 80 years old; 15% say there is no hope for them and predict their golden years will consist of working well into their 80s—or longer.
How Many Years Until the Nest Egg is Empty?
The ideal position for a comfortable retirement is to have a pension pot of such a size that you can simply live off the interest and recurring dividend payments, otherwise known as the natural yield.
If we assume a natural yield of an investment portfolio is about 4%, then a £1m pot would generate a modest income of just £40,000 per year before tax.
This is of course an ideal situation, and most people will not end up in this position. Therefore your monthly pension payments will be a combination of interest and dividends from your portfolio, as well as some capital being drawn down each month.
This means you need to use pension prediction software to work out how long your pension part will last using the expense assumptions you have.
Thereafter if you calculate your nest egg will be empty in say 25 or 35 years’ time, then it is not sensible to retire too early as you will run out of cash before you die.
How Much Do You Need to Save Each Year?
As noted above, we should aim to have a nest egg of at least £1 million. But why £1 million exactly? And is that number still relevant in today’s economic climate?
For example, if you plan on retiring at 65, according to a recent Fidelity study, you’ll need at least £23,000 just to cover your basic annual expenses—which include housing (at £5K), food (£4K), utilities (£3K), transportation (£6K), and health care (£3K).
If your goal is to live comfortably during retirement, though—and not merely survive—you might need anywhere from 70% to 80% of your current working income.
In order to generate this one million pound pension pot, you need to start saving very early and try to contribute at least 15% of your salary each and every month over the duration of your working life.
There will be certain points during your life when you need to check if you're on target, and if you are not you may need to top up your pension contributions with additional cash or bonuses etc.
Will You Work Past Age 65?
Social Security benefits can be claimed at age 66/67, but there are drawbacks to doing so. For example, if you claim Social Security benefits early and continue working, your benefit payment could be reduced or suspended altogether.
If you plan to work after age 65 (and not just part-time), it might make sense to wait as long as possible before claiming Social Security benefits.
Will You Have Enough for Medical Expenses in Retirement?
Medical expenses are one of the biggest expenses you’ll have in retirement. If you’re still paying off medical debt from before retirement, your monthly bill is probably more than £500 a month.
In fact, one study found that 12% of retirees (or their spouses) spend more than £3,500 a year on medical bills—that’s more than half of what many retirees live on each month.
It may sound impossible to save enough money for medical expenses during your working years, so that you can enjoy your retirement without financial stress—but it is possible with a well-planned savings and insurance strategy.
When Can I Retire - The Bottom Line
Figuring out when you can retire is a crucial question—and it’s a hard one to answer. Unfortunately, there’s no single method of determining how much money you need to live comfortably and how long that money will last.
Like other financial questions, there are myriad factors at play: your salary, employer-sponsored benefits (if any), your expected expenses, when you want to retire, whether or not you plan on doing volunteer work after retirement, etc.
Because of all these variables, it’s impossible to pin down exactly how much you should save in order to retire at a certain age, but the general consensus of expert opinion is that you need a £1m pension pot before you can consider retiring early in comfort.