According to research, 45% of British people hoped for a yearly retirement income of at least £20,000.

For most, this is unlikely to be enough. So the question is, how much money do you need to retire?

Based on a separate report, 77% do not know, and only 20% are confident they are saving enough for retirement.

In this article, we look at the cost of retirement and the methods to help you build your pension pot.

How much should you save?

The first step is knowing how much income in retirement is needed.

From here, you can work out how much you will need to save to generate your desired annual income. One way to do this is to use the 4% rule.

What is the 4% rule in retirement?

The 4% rule is commonly used in retirement planning to help retirees determine how much they should withdraw from their pension fund annually.

The idea is to ensure a steady income that lasts throughout your retirement. In fact, this strategy is intended to make your savings last over the course of a 30-year retirement at a minimum.

Using the 4% rule, you divide your yearly retirement income by 4%. For example, let’s say your desired annual income is £150,000. In that case, you would need a retirement fund of roughly £3.75 million.

The ‘4%’ figure is just a guide for how much of your savings you use in the first year of your retirement. In the following years, you may wish to increase or decrease that amount to account for annual inflation rates.

Another option is to use our retirement calculator below to see if you are on track to reach your retirement savings goals.

Sources of retirement income

There are various sources of income that can be used to fund your retirement. Some of the typical options include the following:

Defined benefit pension

Defined benefit (DB) pensions, otherwise known as final salary pensions, guarantee a set income for life. These are usually workplace pensions that your employer will arrange.

The amount is based on one of two things:

• The average amount you earned throughout your career or;
• The salary you earned when you retired

For expats looking to transfer a DB pension, be aware that under UK Law, a scheme with a value of more than £30,000 requires advice from an adviser regulated by the FCA.

The adviser must have permission for the activity of ‘advising on pension transfers and pension opt-outs’.

Defined contribution pension

Defined contribution (DC) pensions are typically either stakeholder or personal pensions. DC pensions can include the following:

• Workplace pensions
• Private pensions

State Pension

The UK State Pension is based on your National Insurance (NI) record.

You will need a minimum of 10 qualifying years to get any State Pension. To receive the maximum amount, you need at least 35 qualifying years.

Passive income sources

Additional retirement income can be generated through passive income streams.

Passive income sources can include things such as:

• Investment returns or;
• Income from investment properties, such as rental income

Reaching your retirement goals with Holborn Assets

Retirement planning is the process used to ensure financial security when you decide to stop working. Understanding how much money you need to retire is an essential first step.

After all, if the end goal is unclear, it’s hard to create a structured plan to help you reach it.

At Holborn Assets, our financial experts can help you determine your cost of retirement and provide the guidance needed to reach your goals.

Make sure your retirement plans are on track and make the most of your golden years. Book a free pension review with Holborn and find out how we can help you.