Simple pension calculator in UK pounds
If you are looking for a super simple pension calculator, you’ve come to the right place.
We believe in keeping things simple. As a result, this is an alternative to all those super complicated alternatives out there.
You know the ones I mean. No matter what numbers you put in, they give you the same result. You have a shortfall, and you need to sign up to whatever pension product they are offering to fill the gap.
Sure, the chances are you’ll have a shortfall with ours too. The difference is, you get that result quicker and we don’t have any pension products to sell you.
In our experience, you just need a simple guide to get you going in the right direction. Anything more and it’s easy to get put off.
This calculator just does what it says on the tin. Enter a few basics and hey presto. It operates in pounds.
Without further ado lets get to it. (There’s a guide below with some answers to frequently asked questions).
How much money do I need to retire?
There’s no getting away from it. How much money you need to retire can be a big question that requires a quite a bit of thinking about on your part.
That said, there are two popular approaches to help you decide.
- Current spending
- Pension standards
With the first approach you simply assume you’ll spend the same in retirement as you do now. But there’s one caveat.
Most people spend less in retirement than they do when they are working.
On average most of us spend 20% less in retirement than we did when we were working.
This means you can just multiply whatever you need now by 0.8.
For example, if you currently spend £50K a year (whilst working) you could assume you’ll only need £40K in retirement.
(Read How will tax impact my UK pension? below for a reason to skip this step)
You may be reading this, thinking £40K isn’t enough for me, but the chances are it would be.
That’s because some nice people over at the Pensions and Lifetime Savings Association (PLSA) have come up with three sizes of retirement living standards.
Retirement living standards
- Comfortable £34K
- Moderate £21K
- Minimum £11K
Frugal, thrifty, economic types will probably get by on the ‘minimum’ standard, whereas those more self indulgent, lavish and luxurious in nature are probably going to need something ‘comfortable.’
That leaves ‘moderate’ for everyone else.
There are three points to be aware of with these numbers:
- They are for people who live outside London
- They are after tax numbers
- And assume you live in a mortgage free house.
Let’s just cover point three. If you are a renter, you could just assume your current rate. You could also research rents for the type of property you intend to retire into if you know it or you could just go with average rents. These are around £1k/month outside London and £2K/month inside London, so £12K or £24K annually.
The other points are covered below, but before we get to them let’s deal with the elephant in the room ie How much does a married couple need to retire UK?
How much does a married couple need to retire UK?
I’m sure it goes without saying that two mouths usually need more pounds than one.
And whilst that is correct, there’s good news. Couples don’t usually need double what singles need.
Instead, it’s more along the lines of half again.
So those PLSA numbers for couples become:
- Comfortable £50K
- Moderate £31K
- Minimum £17K
If you are using your current income rather than PLSA standards you can simply multiply by 1.5 to get an idea of how much two people would need.
How much money do I need to retire in London?
Everybody knows London is more expensive than just about everywhere else.
So I’m sure this is no surprise. If you intend to retire in London you need to be increasing your income requirements.
The question is by how much?
It’s reported that this could be anywhere between 20 and 50% depending on how centrally you intend to locate.
But there’s a handy rule of thumb that assumes 25% more than the rest of the UK.
How much money do I need to retire abroad?
But not everybody wants to retire in London or even the UK for that matter.
The name British Expat Money could be a give away to fact that we do come across the occasional overseas retiree from time to time.
And whilst the odd one does claim to live in a more expensive place than Britain, most do not.
In fact, most expat destinations turn out to be much lower cost than the UK. The question is – How much lower?
If you already live in a place, then you’ll probably have a good idea of the price difference but what about if you don’t.
Well, luckily there’s a great tool out there courtesy of Expatistan.
You can use it to compare the cost of living in two cities.
They break things down into food, housing, clothes, transportation, personal care and entertainment.
But also, they give you an overall idea of the price difference.
Here are a few examples:
The price of global cities compared
- Cost of living in Dubai is 196% more expensive than in Delhi
- Cost of living in Denver, Colorado is 144% more expensive than in Cape Town
- Cost of living in Barcelona is about the same as in Madrid
- Cost of living in New York City is 15% more expensive than in London
- Cost of living in London is 22% more expensive than in Sydney
- Cost of living in Singapore is 64% more expensive than in Dubai
- Cost of living in Singapore is 27% more expensive than in Hong Kong
- Cost of living in Melbourne is 5% cheaper than in Sydney
- Cost of living in Buenos Aires is 38% more expensive than in Bogotá
- Cost of living in Buenos Aires is 52% cheaper than in Mexico City
If I currently earn £50K in London but want to move to New York City, I’ll need £57.5K (50*115%) or the dollar equivalent (currently $72K).
How much do you already have saved up?
The lucky few will already have some existing savings they intend to use for their retirement. If that’s you put them in the ‘How much do you already have?’ box.
Examples being savings accounts, ISAs and pensions (which we are coming to in a bit more detail below).
Just add them all up and enter them in the box.
What about my work based or personal pension?
Work based and personal pension providers should be able to provide you with a current balance.
If you’ve got a recent enough statement just use the number on that. Otherwise, give them a call.
Add these to any of existing savings (see above) and pop them in the ‘How much do you already have box.’
Should I include the state pension in my calculations?
Some people worry that the state pension isn’t going to be around when they retire.
Whilst, I’d never say never, I do think this is highly unlikely. I can’t see a party that gets rid of the state pension getting reelected.
However, there are some arguments to at least suggest it will be worthless in the not too distant future.
If you believe this or if you want to play it safe or even if you plan on retiring early then don’t include it in the calculation. Simply choose ‘No.’
Everybody else should probably choose ‘Yes.’
The calculation assumes you’ll get the full amount.
How much is the state pension now?
The state pension is currently £203.85 per week or £10,600 per year.
How will tax impact my UK pension?
Everybody’s tax situation is different. There’s no way to accurately include it in the calculation. But there are a couple of ways of coming up with a good enough starting point quickly.
First, there’s a rule of thumb that says assume 30% before retirement age and 20% afterwards.
So that equates to multiplying by 1.3 and 1.2 respectively.
The difference is based on the fact that you need to pay national insurance before the official retirement age.
For example, if you expect to spend £30K a year, then assume you need £39K before retirement age or £36K afterwards.
Alternatively, you could just ignore tax. Whilst that sounds somewhat irresponsible when you say it out loud it might not be. You just need to make sure you also ignore the idea that you’ll spend less in retirement. Let me explain.
Remember, we said retirees tend to spend less than their employed counterparts. (Retirees spend 80% of what they spent when employed on average).
If I need £100K now I should be OK with £80K in retirement.
£100K x 0.8 = £80K
But if I then multiply that number to take account of tax I’m more or less back up to where I started ie:
£80K x 1.2 = £96
£80K x 1.3 = £104K
The bottom line being, there’s an argument for ignoring tax and the fact you’ll spend less in retirement because they just about cancel one another out.
What is the retirement age in the UK?
The retirement age in the UK is currently 66 years old. This is the age when you can start to receive the state pension.
But you can start reaching work place and personal pensions earlier. Usually from 55.
Simple pension calculator – summary
Here’s a quick summary of the steps you might take:
A. Going from single to couple x 1.5
B. Moving to London from elsewhere in the UK x 1.25
C. Accounting for current spending to retirement dropping x 0.8
D. x 1.3 to take account of tax before retirement age or x 1.2 to take account of tax at or after
E. Take account of rent where needed. As a starting point assume £12K outside London or £24K inside London.
F. Use Expatistan if you want to compare the cost of living difference in two places
G. Don’t forget to include any existing pensions, investments or savings you have.
Remember, items C and D kind of cancel each other out so you could skip them to keep things simpler.
Worked annual income required example
Here’s an example based on the steps above.
Let’s assume I need £30K after tax in Manchester now but intend to retire in London with my wife at official retirement age. We’ll be living in a mortgage free house. And that £30K just covers me personally so:
£30K for a single x 1.5 = £45K for a couple
£45K from outside to inside London x 1.25 = £56.25K
But we are Mr and Mrs average so we’ll spend less in retirement so:
£56.25K x 0.8 = £45K
But that’s an after tax amount so:
£45K x 1.3 = £58.5K (We intend to retire early).
Or simplified.
£30K for a single x 1.5 = £45K for a couple
£45K from outside to inside London x 1.25 = £56.25
Yes, simplified gives a different answer, but not that different. Neither of them are perfect and one was a lot easier to get to than the other.
