Help! I'm retired: how much can I spend?

  • 14 February 2020
  • 15 minutes
  • We are becoming increasingly responsible for our own financial futures.

  • Many approach retirement fearing their private pensions and savings will not last, subjecting them to years of scrimping [1].

  • Understanding how much your vision of retirement could cost can go a long way to helping you plan ahead.

Many approach retirement with a fear their hard-earned savings will not be enough to fund their lifestyle. Should they err on the side of caution and not have the retirement they’d always hoped for? This is an age-old conundrum.

Charles Dickens’s Mr Micawber summed it up very succinctly:

Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Mr Wilkins Micawber quoted from David Copperfield by Charles Dickens, 1850

The fear is that by enjoying the freedoms that retirement bring now, and spending too much, we set ourselves up for penury in later life. Especially as none of us know how long we’re going to need the money for.

Many a mickle makes a muckle

But as Mr Micawber so eloquently reminds us, understanding our income and expenditure can provide some simple insights. Dividing the value of your savings by your annual spending will give you a very rough idea of how long your money will last.

But we should first think about any sources of retirement income before dipping into our savings.

The New State Pension provides a starting pension of £168.60 a week (at current values) if you have 35 full years of National Insurance payments [2]. So you can deduct this from your expenditure, or add it into the savings column. And, of course, you may be entitled to other state benefits.

If you have any company pensions that provide a guaranteed retirement income based on your final salary (also known as Defined Benefit schemes), this can also be considered before drawing on your savings. And check your personal pension plans. Although the new pension freedoms have sought to liberate the pension market, some historical schemes might still limit the options available to you. For example by restricting you to converting your savings to an annuity. Schemes like this should be considered “income” rather than “savings”.

Finally, if you have income from renting out other properties you should note this down, too. That covers your savings and potential annual income.

Easy come easy go

Now we need to consider the debit side of the equation: your outgoings.

This can be a harder number to estimate so we’ve looked at some national surveys to get a rough idea of what people in retirement generally spend. However, you should consider the type of lifestyle you want to lead in your retirement.

According to Scottish Widows, many savers believe they need to achieve an annual retirement income of around £25,000 for a comfortable retirement [3]. This chimes with surveys of actual spending patterns. According to the consumer group Which?, retired households spend around £27,000 on the basics (utilities, clothing, food etc) and occasional luxuries (such as memberships and European holidays) [4]. If you include long-haul trips this rises to £39,000.

And for a luxurious retirement a couple should be aiming to generate £42,000 of income each year. At the other end of the scale a very basic retirement might be achievable on an income of £18,000 a year in today’s terms.

So if your vision is for a retirement of endless cruises you might want to plan your saving strategy accordingly.

Whilst the figures from Which? include some memberships, you should look at all your lifestyle choices. Do you belong to English Heritage, and/or the National Trust? The Royal Academy and/or the Art Fund? Do you have cable TV or streaming subscriptions like Netflix and Amazon Prime? The figures can soon add up.

Finally, insurance premia increase as we age so review when your current policies are due to come to an end.

Retired households spend around £27,000 on the basics and occasional luxuries.

How much will you need to retire? Which?, July 2019.

Ageflation: four score years and ten

While men and women were once considered lucky to reach a ripe old age of 70, current life expectancies could see most people living into their eighties or nineties. So when dividing your savings by the spending that is in excess of your annual income, you should be looking for a number in excess of 25 years. And possibly aim for 30 years.

If you get a number below this you might want to consider ways in which you could trim your outgoings or increase your potential income. These can include working for longer or taking part-time work. Or consider selling some of your assets. Downsizing your main home to a smaller property with less upkeep can reduce your outgoings, whilst potentially releasing some valuable equity.

As well as the uncertainty around our life spans, we also need to consider future investment returns (both positive and negative) and changes to the cost of living (inflation). You should also consider that drawing more income from your pension savings could affect the level of income tax you pay.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

If you are feeling anxious about your retirement, talking your situation through with a financial adviser can be a great way to understand your situation better. It can also help develop a personalised strategy that aims to meet your specific financial goals, and identify some potential concrete actions to help get you there.

In short, they could bring you some peace of mind.

Read more: Five tips for a happy retirement

This article is for information only and is not a personal recommendation. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. Eligibility criteria, fees and charges apply for advice from Schroders Personal Wealth.

Important information

Any views expressed are our in-house views as at the time of publishing.

This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or in part) without our prior written consent.

Fees and charges apply at Schroders Personal Wealth.

In preparing this article we may have used third party sources which we believe to be true and accurate as at the date of writing. However, we can give no assurances or warranty regarding the accuracy, currency or applicability of any of the content in relation to specific situations and particular circumstances.



[2] HM Department of Work and Pensions, correct as at 13 November 2019

[3] The future of retirement report 2019, Scottish Widows, August 2019


Let's start with a free initial consultation

We'll begin with a free, no obligation conversation to understand if our service is right for you. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

Tap into some of the finest minds in the business

Our regular newsletters are packed with food for thought. Sign up for expert views and opinions, and choose which areas of financial planning and investment you’d like to hear about.

This site is protected by reCAPTCHA and the Google privacy policy and terms of service apply.

Read our latest financial insights