How Much Do I Need to Retire at 60?

So you want to retire at 60. Awesome! So many people get stuck in the idea that they can only retire when they reach the age they become eligible for State Pension. As this age is slowly increasing in many countries across the world, it makes total sense that more and more people will want to retire ‘early’. 

The good news is, retiring at age 60 is possible, especially if you’re prepared to do a few hours work here and there until your State Pension kicks in. In this article, we’ll explain how you should calculate what income you need to retire at 60, and how much you need to have in private pensions or investments to meet this number.

How Much Income Do You Need to Retire?

Ok so the first thing you need to work out is how much income you need to live the lifestyle you want to live in retirement. After all, this is the key number that will allow us to work out everything else. There are a number of ways to approach this question.

The first way is to look at how much money you spend now, and then compare this to how your retirement will look. So for example, if you spend £40,000 a year now and your general life situation won’t change when you hit 60 (e.g. a mortgage that will be paid off, kids that will have left home), then £40,000 a year is probably a good starting point. With that said, it’s always a good idea to add a bit of an extra buffer in there, because you’ll have more time on your hands. You’ll hopefully be having a few more meals out, spending a bit more time and money on your hobbies and going on a few more holidays.

If you really don’t know how much you spend and don’t know where to start, working out your expenses is a really good place to start, and this article can help you with that. You can also look at studies that have been done to work out how much you need for a comfortable retirement. We go over that in this article, and you can find more information about what equates to a comfortable lifestyle there as well.

How Do Final Salary Pensions and State Pension Impact Retirement Plans?

In a nutshell, according to the Pensions and Lifetime Savings Association, a couple needs an income of £30,600 each year in order to live a Moderate lifestyle, and £49,700 each year to live a Comfortable lifestyle. Obviously these figures are very broad and will be different for everyone.

So let’s say you are a couple and you’re aiming for a comfortable retirement. Your current spending is around the £50,000 mark each year, and this lines up with the estimate from the Pensions & Lifetime Savings Association. Obviously if you’re not working, this means you need to have other income or investments to support this income.

The first thing you want to do is look at any Final Salary/Defined Benefit pension schemes and how and when you will be able to draw these. There can be penalties for taking them early, so if you can afford to, it is often better to use your other assets to meet your living expenses until you reach their retirement age. The next thing you want to work out is how much you’re going to receive in the State Pension. This is also a good time to check whether you’re going to be eligible for the full amount, and if not, whether you can top this up with some voluntary contributions.

Once you’ve done this, hopefully a good chunk of your £50,000 is going to be taken care of. Let’s say that in our example, both partners are going to receive £6,000 each in Final Salary pension schemes, and a full State Pension of £9,600 (ish) each. All up, that means they’ll be receiving £20,400 in guaranteed income each year, leaving another £29,600 to be found somewhere else. 

How Much Money Do I Need to Retire at 60?

So now we need to find £29,600 from somewhere else. The best way to work out what level of investments you need to support your income, is to do proper cashflow planning on an excel spreadsheet or specialised software program. Failing that, we can use the 4% rule to give us a very broad rule of thumb on how much you need to support your retirement income.

The 4% rule basically states that you can safely withdraw 4% of your investment portfolio whilst broadly maintaining its value over the long term. So if you have a portfolio worth £100,000, you can withdraw £4,000 and that £100,000 should stay around the same or even grow a little bit to cover inflation.

Using this rule, it’s pretty straightforward to work out how much you need to have in investments to support your desired retirement income. In our example, it means that the couple need to have £740,000 in order to generate a sustainable income of £29,600 each year. Of course, if you want to retire at 60, you’ll need to also add in the extra money you need to cover the years until your Final Salary and State Pension kicks in.

Retiring at 60 Examples

Below, we’re going to provide some figures that use the 4% rule to estimate how much you might need to have in investments to retire at 60 as a couple, based on different levels of income. These figures are based on both being able to access a full State Pension at age 68, and needing to cover 8 years of living expenses in liquid assets prior to this point. 

These are very broad estimates only. They should be used as a starting point for further research and advice, not figures to base your whole retirement strategy on.

How to Make Early Retirement More Affordable

Some of these numbers look pretty big, and a large part of that is because at age 60, you’ll be needing to fully fund your living expenses for 8 years until the State Pension kicks in. With this in mind, there are things you can do to make early retirement more affordable. 

Work Part Time

Any income you receive during retirement is going to make a big difference to the longevity of your money. Even if you are earning around the minimum wage of £10 per hour, working 10 hours per week adds up to £5,200 per year. If both members of a couple are doing that, you’ll be bringing in £10,400 a year, which reduces the portfolio size you need by £260,000 based on the 4% rule.

Now obviously you aren’t likely to want to, or be able to work part time forever, but even if you just did this until you hit the State Pension age, it would make a big difference.

Downsize Your Home

This is another common option for retirees. As you get older, you may not need a large family home with a garden, and it might make more sense to downsize for many reasons. Financially, it could allow you to move into a new property that is cheaper to maintain, has cheaper bills and a lower Council Tax band, and will allow you to pocket some extra cash for investment.

It will also mean you are likely to have less ongoing maintenance and a smaller property to keep clean and tidy. This can give you more time to spend your retirement doing the things you enjoy, as well as making things easier for your as it gets more difficult to do chores in later life.

Consider Equity Release

Similar to downsizing, equity release can be an option to unlock value within your property to allow you to fund your living expenses. This allows you to take a mortgage against your property that is only paid back when you eventually pass away. It’s a big decision, and not one that should be taken without receiving proper advice, but it is an option to consider. We wrote an article about this here, as there are a lot of misconceptions about this type of scheme. 

Summary

Early retirement is a great goal to have, and it can be achievable as long as you plan for it properly. The amount of money you need to retire at 60 will be different for everyone, but as a rough guide, if you are a couple who wants to retire at age 60 with an income of £40,000 per year, you’re likely to need an investment and pension pot in the region of £1 million. As always, there are strategies and plans you can put in place to make this more achievable than it might first seem.