How much money should I set aside for retirement?

Keeping track of how much money you need to live a comfortable retirement is challenging. We've put together a few rough estimates of income that may vary from person to person, as well as the questions you should be asking yourself to make sure you are prepared financially for retirement.

What is the minimum annual income required to retire comfortably? There's no magic number that will determine your retirement income, and how much you'll need to save will be determined by your lifestyle. Those planning to travel the world in retirement and eat out on a regular basis will need more money than those who enjoy cooking at home and exploring their local area.

We've already done some of the maths, which takes into account three distinct levels of lifestyle in order to provide individuals an estimate of how much money they'll need for retirement. We can't emphasise enough that these are merely estimates, but they should give you an idea of where to aim.

For a modest lifestyle, where all essential expenses such as food and utilities are covered, but there is little money for even the most basic weekend getaways, you'll need an annual income of £13,000. If you live with someone else, you'll require an annual income of £18,000.

You'll need £19,000 for two if you want a 'comfortable' lifestyle that adds up to a little more than double the average retiree's income. To fund a luxury retirement where you can travel overseas, buy new automobiles, and live life to the fullest, you'll need £31,000 for one or £41,000 for two.

What is the best way to determine my retirement income budget? Here are some questions to ask yourself or bring up with your financial advisor:

• What is the minimum income I need to cover my expenses? If you're staying home more often, consider the impact on your mortgage/rent payments and utility bills (which will likely rise) as well as transportation and groceries. Retirement is all about covering the absolute basics.

• Can I spend as much on non-essentials as I would like? Whether you want to hike, dine out more often, or take the grandchildren on a trip, make sure you budget for non-essential expenses too.

• Am I eligible for state benefits? You may obtain a state pension from the age of 66 if you've made 35 years of National Insurance (NI) contributions (either through employment or by claiming certain benefits). If you're planning on saving for your retirement, the most you can earn is £179.60 per week, which amounts to £9,339.20 per year for each person - less than even the bare minimum amount.

• Can I save more towards retirement, or how much am I saving? It's ideal to start putting money away for retirement as soon as possible. Whether you've already started or want to begin building up your pension pots, tools like our pension calculator calculate how far your money will go.

What is the maximum amount I can expect to receive from my pension? This is a very personal question that is determined by your desired retirement lifestyle. The amount will also be determined by your future plans. Saving a smaller initial amount and taking it out gradually using a pension plan would allow it to grow (though the return on any investment is never guaranteed). Another option is to purchase an annuity, which is pricier, but guaranteed and will provide a steady income.

You would need to require a pension pot worth £757,000 to acquire an income of £41,000 per year now. You may have the same standard of living through income drawdown with just £442,020 saved — but this is a riskier option because there is no assurance of a regular income.

What options do I have for my retirement income? It's important to determine your retirement options before you retire. Before making any decisions that will affect your money, you need to speak to a professional about your plan. There is no one-size-fits-all solution. The following are some of the most frequently asked options that should be discussed with a professional:

• Pension Drawdown - The drawdown option allows you to regularly withdraw income from your pension fund while still allowing the remainder to grow through investments. Although you may lose money if the stock market turns against you, this is a comparatively low-risk investment strategy.
• Annuities - You can purchase an insurance policy that guarantees you a certain amount of income for the rest of your life. The price of the policy will depend on your age, how healthy you are, and how much income you would like to receive. It's a safe and effective way to make money, but it won't allow your money to grow or earn interest. • Withdrawing a lump sum - The lump sum option is available to some pensioners, starting at 55. They might use it to pay off their mortgage, reduce their outgoings, or gift it to their children. You can withdraw up to 25% of your pension tax-free, with the remainder continuing to expand or go toward an annuity at a later date.

Defined contribution vs. defined benefit pensions- The first thing to note is whether the pension(s) you contribute to are defined benefit (DB) or defined contribution (DC). The term "final salary" is becoming increasingly rare these days, and it's typically only accessible by large public sector employers. You are guaranteed a set income for the remainder of your retirement, which is based either on the average income you have earned over your career or the salary you earned close to retirement.
You won't be given the choice to cash in your defined benefit pension if you have one. Because you've already acquired a 'benefit' rather than a long-term savings account, you won't be offered this option. Instead, you'll get a set amount of money. The vast majority of private and workplace pensions now fall into the DC category, which means that you pay into a pension pot and can use it to buy annuities, reinvest, or withdraw during retirement.
What amount of income is required to semi-retire? In many cases, semi-retirement is a sensible step forward for people who are not ready to retire full-time, either financially or mentally. In this situation, you are able to slowly adjust to having more free time as well as supplement your state and private pension income. Before you leap into semi-retirement, be sure it's a realistic option. If you quit your job without recognizing the difficulties, such as how candidates over 40 are 50% less likely to receive an employment offer, you may be on the road to serious financial difficulties. In order to live comfortably and if you live alone, ensure you can claim enough state and private pensions (or both) in combination with what you earn.

Reduced working hours or part-time employment Some businesses will allow older employees to work less, either by job sharing (where one full-time position is covered by two part-time workers, with the pay being distributed pro-rata) or by transitioning into a similar part-time role. Professionals with skills could move into consulting or work independently, earning more money and having more control over how they spend their free time.
If that's not an option, some people will take on a part-time job instead. To ensure you remain financially secure, find new employment before quitting your current job, particularly if you can't afford to completely retire.

Don't jump into retirement unless you are certain that an alternate career will provide the safety net you need. Every year you're retired means another year without contributing to your retirement pot and another year of depleting the funds you've worked hard to build up.

Voluntary work Whether you're financially comfortable or concerned about having nothing to do in retirement, volunteering is a great option. However, volunteering is unpaid, so you won't be able to supplement your retirement income with it.

You might, however, be able to get non-monetary perks in your role that can help you lower your expenses. For example, if you're volunteering with local schools or community projects, you might be able to get free refreshments or transportation.
As an added bonus, if your volunteer activity is something you would happily pay to do for fun, or if you choose to volunteer abroad, you will be able to get some of your travel costs such as accommodation and membership fees covered.

Pensions funded by investments Due to relatively reliable returns on assets like property, you may be able to semi-retire. This is a great option for those who don't want or aren't eligible for a pension or for those who want to give up work completely without going too deep into their retirement savings.

Are you uncertain what the best choice is for you? Use Wiseful's handy search tool to locate a financial advisor or accountant who you can trust.