Welcome to The Financial Journey Insights series—created by Baggette + Co. Wealth Management to guide you through each stage of retirement planning.
This series covers essential elements for building a confident, secure future, from calculating retirement income needs to managing investments and exploring tax-efficient strategies.
One of the first questions I’m often asked as an independent financial adviser is, ‘How much do I need to retire comfortably?’
It’s a question at the heart of effective financial planning and is essential for creating a retirement plan that truly reflects your lifestyle, goals, and unique needs and sets a clear path toward financial security.
At a Glance
- Defining a ‘Comfortable’ Retirement: We’ll explore what a comfortable retirement might look like and how expenses can vary throughout different stages of retirement.
- Key Factors Influencing Retirement Needs: Learn how housing, healthcare, lifestyle choices, inflation, and legacy goals shape the amount you’ll need for a secure retirement.
- A Stable Withdrawal Rate in Retirement: Discover the “4% rule” as a benchmark for potentially more sustainable withdrawals, ensuring your retirement savings last without depleting your funds prematurely.
- When to Start Planning for Retirement: Find out why early planning is key, and see how retirement readiness evolves across different life stages, from your 20s to your 60s.
Read on to uncover the essential steps toward building a confident and comfortable retirement.
Imagine waking up on your first day of retirement filled with excitement, not anxiety about finances. It’s a dream shared by many of our clients: to spend their later years comfortably, free from financial stress and able to pursue hobbies, travel, and family time without worry.
In this insight, we’ll explore the key factors influencing retirement needs, from lifestyle expectations and pension planning to the benefits of working with an independent financial advisor to achieve the retirement you envision.
Financial Planning and Retirement Income
Many of us feel a strong need to know what we’ll need for a secure retirement. Gone are the days when most of us could rely on a Final Salary (Defined Benefit) scheme that offered certainty around retirement income. Instead, we now depend on our personal “retirement pot”—whether through pensions, ISAs, investments, property, or other income-producing assets—to see us through.
Statistics from the Office for National Statistics show a 1 in 4 chance that a 55-year-old man today will live to 92 and a woman to 95. For those retiring at 55, this means there’s a 25% chance their retirement planning may need to cover the next 37 to 40 years. [Source]
But it’s not just about retiring—it’s about enjoying a comfortable retirement.
While there’s no one-size-fits-all figure, the Retirement Living Standards offer a helpful guideline on what comfortable retirement might entail.
So, how can you reach that goal?
At Baggette + Co., we partner with clients daily to help them define and achieve their retirement aspirations. Our independent financial advisers provide expert, impartial financial advice to minimise surprises.
Since 1986, we’ve proudly served Dorset and Hampshire, and one of the hardest things for us is when we can’t help—usually because it’s too late.
It’s always better to talk with a professional financial adviser sooner, even if it ‘feels’ too early for you.
What Does a ‘Comfortable’ Retirement Look Like?
The concept of a “comfortable retirement” can vary greatly from one person to another. But, there are helpful guidelines to give us an idea of what a comfortable retirement might look like financially.
The Retirement Living Standards suggest that a comfortable retirement for a couple in the UK costs around £59,000 per year.
However, I believe this figure is too generic and doesn’t truly account for each person’s unique circumstances.
Retirement expenses are shaped by many factors, such as the stage of retirement, personal background, liabilities, and the lifestyle you’re accustomed to.
One often overlooked aspect of retirement planning is that expenses tend to fluctuate significantly throughout retirement.
Rarely do retirees maintain a consistent level of spending year after year. This graph, intentionally left without fixed figures or ages, reflects the varied financial journey many people experience.
Typically, retirement spending starts low as people ease into a new phase, then gradually increases over the first five years as confidence grows and lifestyle goals become priorities.
This expenditure may slowly decrease after the initial “bucket list” items are checked off, and life settles into a new rhythm. Later, spending often declines further as energy levels dip, with perhaps less interest in major travel or big purchases.
Unfortunately, a later increase in expenses is common, often due to care-related costs in advanced years.
So, how do we factor in these changing needs?
Rather than relying solely on averages, effective retirement planning should adjust to cover both lean and peak spending years to ensure comfort across all phases of retirement.
Factors Influencing Your Retirement Needs
Creating a sustainable, comfortable retirement plan means accounting for numerous personal factors that can impact how much you’ll need. Let’s break down some key areas that influence your retirement needs:
Housing and Living Costs
- Ongoing Housing Expenses: Housing is one of the most significant expenses for retirees. Whether you plan to remain in your current home, downsize, or relocate, each choice brings different costs and considerations. For example, maintaining a family home may mean ongoing upkeep and higher utility bills, whereas downsizing can free up equity but may include moving and renovation expenses.
- Location and Cost of Living: The cost of living varies greatly across regions, which affects overall retirement expenses. Retiring in higher-cost areas like Dorset and Hampshire, where Baggette + Co Wealth Management is based, may mean budgeting for increased daily expenses.
Healthcare and Long-Term Care Expenses
- Anticipating Rising Healthcare Costs: Health-related expenses often increase with age, encompassing both routine healthcare costs and unexpected medical needs. The NHS provides a baseline of care, but many retirees budget for private health insurance to access additional options and cover out-of-pocket expenses for procedures or treatments not fully covered by the NHS.
- Planning for Long-Term Care: An often-overlooked element of retirement planning is the cost of long-term care, including in-home support or nursing facilities. Planning for these expenses can prevent financial strain if health issues arise later in life. An experienced independent financial adviser can help you estimate potential care costs and build a financial safety net through insurance, savings, or specialised long-term care policies.
Travel and Leisure Activities
- Lifestyle Goals and Associated Costs: Retirement offers more freedom to travel, pursue hobbies, or take on new adventures. Some retirees allocate a substantial part of their retirement income to fulfil these dreams, which can significantly impact annual spending.
- Budgeting for Flexibility: To balance enjoyment with security, many retirees set up a “leisure fund” to ensure they can enjoy hobbies, dining out, and other activities without jeopardising essential savings. Flexible budgeting can make it easier to adjust spending as priorities change or other unexpected expenses arise.
Inflation and the Impact on Buying Power
- Understanding the Impact of Inflation: Inflation affects your buying power over time, especially in retirement when you may be living on a fixed income. Even modest annual inflation can erode purchasing power, making today’s essential expenses significantly more expensive in the future.
- Investment Strategies to Combat Inflation: To mitigate this risk, your retirement plan would usually include an element of growth-oriented investments that aim to outpace inflation over time. This will vary depending on several factors and will likely also need to be adjusted over time. A balanced, diversified portfolio—developed with investment advice from an independent financial adviser—can help ensure that your savings grow alongside inflation and continue to support your lifestyle. Since your plans may change throughout retirement and the sustainability of the fund is influences by the growth, this can be very important.
Family and Legacy Support
- Supporting Adult Children or Grandchildren: Many retirees find themselves helping family members financially, such as contributing to children’s weddings, education, or even housing deposits. Known as the “Bank of Mum and Dad,” this phenomenon is common, but it’s essential to incorporate these expenses into your retirement budget to avoid impacting your financial security.
- Legacy and Estate Planning: For those who wish to leave an inheritance or establish a legacy for loved ones, estate planning becomes a key component of financial planning. This process often involves tax-efficient strategies to maximise what is passed down while minimising inheritance tax liabilities. Working with an independent financial adviser can ensure your legacy goals align with your financial security in retirement.
Each of these factors plays a significant role in shaping how much you’ll need in retirement.
By building a comprehensive and flexible retirement plan that accounts for these influences, you’ll be better equipped to navigate the various stages of retirement comfortably and confidently.
Understanding the Stable Withdrawal Rate in Retirement Planning
One of the most common questions when it comes to retirement income is: “How much can I safely withdraw each year without running out of money?”
“The 4% Rule” offers a general guideline, suggesting a sustainable amount that can be withdrawn from retirement savings without depleting them prematurely.
The most widely used stable withdrawal guideline is the 4% rule, based on research by financial planner William Bengen. The rule suggests that if you withdraw 4% of your retirement savings each year, adjusted for inflation, your portfolio should last about 30 years.
For example, if you have a retirement portfolio of £1 million, a 4% withdrawal rate would give you £40,000 per year.
While the 4% rule can be a helpful benchmark, individual circumstances vary.
Factors like life expectancy, inflation, investment performance, and unexpected expenses can all impact how long your funds will last though. Careful planning will be needed to ensure any withdrawal rate selected is sustainable.
Additionally, it can be helpful to know if you could be spending more of your retirement savings.
Hypothetical Retirement Planning Scenario
Let’s consider a hypothetical retirement planning scenario that demonstrates the value of a strategic retirement plan with multiple income sources:
- Age: 65
- Retirement Status: Planning to retire within the year
- Outstanding Debts: None
- Savings and Investments: £750,000 in pension savings, a £150,000 investment portfolio, and a buy-to-let property yielding £12,000 per year
- State Pension: £10,600 per year
- Annual Expense Goal: £30,000
But how much could they sustainably withdraw?
In this pension planning scenario, with multiple income streams apart from savings, meeting this client’s £30,000 annual target is quite feasible.
Given these assets, this individual is well-prepared for retirement. By applying the Safe Withdrawal Rate of around 4% to their savings, they could sustainably withdraw approximately £36,000 per year.
Here’s how that income breaks down:
- Total Savings and Investments: £750,000 (pension) + £150,000 (portfolio) = £900,000
- Sustainable Withdrawal: £900,000 × 4% = £36,000
- Additional Income Sources: £12,000 from rental income + £10,600 from State Pension
This total estimated annual income of £58,600 (before tax) comfortably exceeds their £30,000 annual target.
In financial planning, a Swedish idiom aptly reminds us, “Many small streams make a river”—similar to “Don’t keep all your eggs in one basket.”
This client has successfully reached their retirement goals by maintaining diverse income sources—up-to-date state pension, a second property, a well-funded pension, and regular ISA contributions.
Without these elements, their retirement planning picture would look quite different.
Individual circumstances are crucial when planning for retirement. At Baggette + Co., we recommend completing a full Cash Flow Modelling plan to get a comprehensive, personalised view of your financial future.
As the saying goes, fail to plan, plan to fail.
When Should I Start to Plan for Retirement?
There’s no hard and fast rule, but the best time to start planning for retirement is as early as possible.
Here’s a quick look at how starting at different stages of life can impact your retirement readiness:
Retirement Planning In Your 20s and 30s
Starting retirement planning in your 20s or 30s allows your investments to grow through compounding, where gains build upon gains over time.
Even small contributions add up over the years. Early starters benefit from greater risk tolerance and can prioritise growth, building a strong financial foundation for the future.
Retirement Planning In Your 40s
Your 40s are a key period for accelerating savings for your retirement. Many see income growth in this stage, allowing increased contributions to pensions or ISAs.
This is an ideal time to review your goals and make any necessary adjustments to your investment strategy.
Retirement Planning In Your 50s
By your 50s, retirement feels closer, making it crucial to focus on maximising savings and reducing debt. Catch-up contributions can boost your retirement fund, while cash flow planning helps visualise income needs. Reducing high-interest debt can also free up more income for retirement.
Retirement Planning In Your 60s and Beyond
In your 60s, retirement planning shifts towards income stability. Establish a sustainable withdrawal strategy, such as the 4% rule, and ensure that healthcare costs are covered. Consider a phased retirement if you wish to ease into retirement while keeping income streams flowing.
No matter your age, starting planning for retirement now is the most important step.
For a more in-depth guide on retirement planning at every life stage, check out our full guide on when to start saving for retirement “How Early Should You Start Saving for Retirement?”
Take the First Step Towards a Comfortable Retirement
Ultimately, knowing how much you need to retire comfortably is a question best answered through careful planning, a clear understanding of your goals, and the support of a knowledgeable team.
Baggette + Co. Wealth Management has been helping clients in Dorset and Hampshire navigate this financial journey since 1986. Our experienced independent financial advisers are here to provide clarity, confidence, and support at every step.
What’s Next?
After understanding the foundations of retirement comfort, the next step is to dive into specific income planning. In the next of our “Financial Journey Insights,” we look at “Estimating Your Retirement Income Needs” to explore methods for calculating your required income in retirement.
Experienced Independent Financial Advisers for Your Retirement Planning
If you have questions about financial planning for your retirement, our experienced independent financial advisers in Dorset and Hampshire are here to help. Contact Warren Kavanagh by email on: [email protected], call 01202 676983, or connect with our independent financial advisers in Poole.
Baggette & Company Wealth Management Limited is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. The Financial Conduct Authority does not regulate Estate Planning or Cashflow modelling.
Capital is at risk. You may get back less than you invested. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.