Can I afford to retire?

The best-case scenario: You have enough saved to retire

In the best-case scenario, you will have sufficient funds with which to retire comfortably.

These funds will provide you with income to sustain your desired lifestyle throughout retirement.

How much is enough to retire?

The amount needed to retire differs for each individual. It depends on factors such as health, expected longevity, lifestyle, retirement country, and personal circumstances.

If you are trying to determine how much money you will need, it is often better to think in terms of annual income rather than a single lump sum.

A commonly used rule of thumb is that, in retirement, you should aim to live on around 80% of your pre-retirement income.

This is only a rough guide and will vary depending on your own situation.

If you expect to be more active after retirement, you may need more.

If you are in poor health and require costly care, you may also need more.

If you expect a quieter retirement, particularly in a country with a lower cost of living, you may need less.

Sources of income in retirement

When assessing whether you have enough to retire, consider all sources of income you can rely on.

• State Pension
• Personal or employer pension schemes
• Dividends
• Interest on savings
• Annuity payments
• Rental income from property

Retirement calculator example

If you need £75,000 per year in retirement and expect £9,000 from State Pension and £33,000 from an employer pension, this leaves a £33,000 annual shortfall.

Using the 4% rule, multiplying this by 25 suggests a required investment pot of approximately £825,000.

Do not forget inflation.

If you retire in a country where the UK State Pension is frozen, increases will not apply.

If you have accepted a Pension Increase Exchange, employer pension income may also be frozen.

In these cases, additional invested capital will be needed.

The medium-case scenario: You are close to having enough saved to retire

Many people approach retirement with almost enough money.

If this applies to you, there are still options available.

Continuing to work for longer can:

• Allow further saving and investment
• Give your retirement funds more time to grow
• Reduce the number of years your savings must support

Semi-retirement or consultancy work can also provide income while keeping you mentally active.

The worst-case scenario: You don’t have enough saved to retire

In the worst-case scenario, you may not yet have enough saved to retire comfortably.

This is more common than many people realise.

Working longer — ideally until at least age 70 if possible — may be necessary.

You could also consider downsizing property to release capital.

Another option is retiring to a country with a lower cost of living, allowing your money to stretch further.

Retirement location has a major impact on how long your savings last.

Making an informed decision about where you spend your retirement years is critical.