How much money do you really need to retire?

General figures about the cost of retirement income can have their uses, but the fact of the matter is that, like many aspects of life, the cost of retirement will depend greatly on your own personal circumstances, needs and wants.  Therefore, instead of looking at “average costs”, we’d like to suggests some points you should consider when estimating how much money you will need to live on comfortably in retirement. Housing Obviously you will need a place to live in your retirement and where you choose to live will influence how much it will cost, although working out the effective cost of a home may require looking at far more than just the headline figures.  For example, let’s say you own a flat in London and have paid off your mortgage.  It would be nice to say that it would now be free to live in your flat, but actually there will still be costs involved and these costs may be both open and hidden.  An example of an open cost might be council tax, which you might still be required to pay depending on your income.  An example of a hidden cost might be the loss of earnings generated from the lump sum you would gain from selling your property and moving somewhere smaller and/or in a more affordable location.  Moving to a more affordable location, however, could also carry hidden costs, for example, you may find yourself spending money on fares to visit your nearest and dearest or for them to visit you.  You then have to decide whether or not the move is justified either because you are still better off financially or because the move enhances your life in some other way, such as allowing you to live in a more congenial climate. Opportunities to earn further income Retirement is an opportunity to leave behind the grind of everyday working life, but you may still find it beneficial to keep working in some capacity, at least in the earlier part of your retirement.  You may also want to look at other ways to earn income such as letting out a room in your property.  What opportunities are open to you will depend at least partly on your housing decisions.  For example, if you opt to live in a popular holiday destination and have a spare room, then you could look at offering holiday lets, whereas if your home is off the tourist trail and/or you don’t have a spare bedroom, then the holiday lets market may effectively be closed to you, although other options may still be open, such as undertaking knowledge-based work via the internet or running your own online store.  Basically the more income you can earn in your retirement years, the further your retirement savings could potentially stretch and the longer you can delay your effective retirement (as opposed to your official one) the longer your retirement savings will have to keep growing. Desired lifestyle A person’s lifestyle essentially has two components, needs and wants.  Needs, by definition, have to be taken care of as top priority and so your needs will form your baseline for judging the cost of your retirement.  In order for your calculations to be accurate, it is really important to be clear about the difference between needs and wants.  For example, you need a place to live, you do not necessarily need a home with one or more extra bedrooms, even if you do plan to have family over regularly.  Once you have worked out how much your needs are going to cost, you can start looking at your wants and, if necessary, prioritising them and thinking about what they will mean in financial terms. For pension, investments advice and tax planning we act as introducers only.