Working out how much money you’ll need for retirement is a bit like asking ‘how long is a piece of string?’ 

The answer rests on two things: 

• what kind of lifestyle do you have? 
• how long will you live for? 

The first part is easy to work out – you can review your living costs, household bills, cost of hobbies, holidays and leisure activities, etc. Add in the cost of the things you might be planning to do, such as travel. Remember also to factor in things you might no longer need to pay for, maybe a mortgage, costs for children, paying for traveling to work and parking. The Pensions and Lifetime Savings Association has a useful website that helps you work out the cost of your lifestyle in retirement

The second part is clearly harder to know. However, as people are living longer lives, it’s possible that you could spend around 30 years – or one third of your lifetime – in retirement. So it’s important to make sure not only that your money will stretch for as long as you might need it but that you think about the effects of inflation. 

Have a coffee!
For example, the average price of a takeaway coffee is currently £4.00. Thirty years ago in 1994, a coffee cost £1.00. That’s an increase of 300%. By this measure, it could mean that in 2054, a coffee might set you back £16.00. We’re appalled by this now, just as we would have been appalled in 1994 by the mad idea that the price of a coffee might reach £4.00! 

What this means for you
Although you need to plan for the effects of inflation, over the years that you’re saving for retirement, your pension fund is also invested to help it grow. The thing that you can do today is make sure that you’re contributing at the right level for you. 

Use Manage my pension to check your contributions. 

Look out next month for Part 2: how much do you need to contribute?