This article appears as part of the Money HQ newsletter.

Whether you’ve got 20 years before you retire or just a few, it’s important to have an idea of just how much money you’ll need for a comfortable lifestyle once you stop earning a regular salary.

How much money do I need to retire?

Helpfully, the Pension and Lifetime Savings Association predicts approximately how much individuals and couples will need in their pension pot, to have a comfortable, moderate or minimum standard of living in retirement.

The important thing to be aware of is, these figures have increased in the past 12 months. The PLSA’s latest figures, released in February 2024, show that a single person will now need £14,400 a year to achieve the minimum living standard, a rise of £1,600.

They would need £31,300 a year for moderate, and £43,100 a year for a comfortable lifestyle, which includes a two week holiday in Europe and several UK mini breaks. For couples, the price tag of these three lifestyles is £22,400, £43,100 and £59,000 per annum.

The minimum living standard covers most people’s basic needs. For example, you could holiday in the UK, eat out about once a month and spend around £600 on clothes and footwear a year. But don’t expect to run a car.

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The moderate lifestyle provides, in addition to the minimum lifestyle, more financial security and increased flexibility. For example, you could take a two-week holiday in Europe and eat out a few times a month. And you could afford to run a small car.

At the comfortable level, you could enjoy some luxuries like regular beauty treatments, theatre trips and at least two weeks in Europe a year.

By putting a ballpark figure on actual lifestyle choices the PLSA aims to help people develop their own personal savings goals based on their individual circumstances and expectations. Having a concrete goal based on things you enjoy doing, such as holidaying, or eating out with friends, is a powerful psychological motivator to keep saving.

Whatever stage you’re at on your saving journey, having a specific income in mind can help you focus on the end goal – and look forward to it!

Your pension income reality check

Many people may be shocked to learn how little income their savings will provide. Which is why it’s vital to realise the power of ‘saving sooner rather than later,’ and not simply hoping for the best.

Assuming you qualify for the full annual State Pension of £11,502 (2024/25), the PLSA says you’ll still need to build up a pension pot worth more than £590,000 to achieve a comfortable retirement. This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.

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The good news is that a combination of the full State Pension and auto-enrolment in a workplace pension, most people should be able to look forward to the PLSA’s minimum level of retirement.

However, a modest contribution level is unlikely to be enough to get you over the line between the PLSA’s minimum and moderate lifestyle standards. That’s why leaning in to the process, and starting to make proactive financial plans for your later years while you’re still working could – literally – pay dividends.