How much income will I really need in retirement?

It’s that age-old conundrum: How much should I save for my retirement?

Nowadays, people want to have fun in retirement:  travel more, spend more time with family and friends, learn some new skills, start a business and stay active.

It’s all about having the freedom to do all the things you always wanted to do. But given longer lifespans and concerns about the financial status of the State Pension, what should be your target income to fund a potentially decades-long retirement?

Can you realistically estimate your income requirement in retirement?

In retirement, the expenditure of many falls considerably as mortgages have been paid off, children have been reared and are now financially independent of you and typically pensioner’s health is good.

We believe that it is possible to determine a reasonable income requirement for your retirement needs. You need to start by constructing a foundation for your financial plan, then answer a few important questions and finally do some number crunching. Provided you plan ahead, estimate and project the figures in a prudent manner, you should be able to accumulate a nest egg sufficient to last you through your retirement years.

Next steps

There are several key steps you need to complete before you can determine what size of nest egg you’ll need to fund your retirement.

We have noted 6 important steps below to get your started:

  1. Firstly, choose the age at which you want to retire – most people retire between age 60 – 70 but increasingly we are seeing people targeting a retirement age in their late 50’s;
  2. Now, decide on the level of annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 70% – 80% of your current annual salary in order to maintain your standard of living; we use 80% for all client projections and feel this is the most suitable figure to use;
  3. Then, gather the current market value of all your savings and investments – e.g. cash deposits, pensions, investments, rental properties etc.;
  4. Determine a realistic annualized investment rate of return (net of inflation and costs) on your investments between now and your chosen retirement date. A realistic annual rate of return for a stock portfolio would be in the region of 4% to 6%, however cash may only yield 1% pa. These projections are important and therefore this area needs to be discussed with your Financial Advisor, as different asset types tend to produce different returns;
  5. If you have a company / occupational pension plan, ask the scheme trustees for a current and projected value – do you know if you have a defined benefit pension in retirement?
  6. Finally, estimate the value of your future State Pension benefits.

Considering your time to retirement

If you are drawing up your financial plan only a few years before you intend to stop working, you may not be able to risk very much of your investment capital, and consequently your return estimates will be on the low side. Conversely, if you have 30 or 40 years to go until your desired retirement date, you can realistically aim for higher returns or more in annualized returns.

So, what is a common target income in retirement?

As Advisors, we are often asked to estimate how much a client will need in retirement by calculating an income replacement rate based on the client’s current income. We find that a 70% – 80% replacement rate is a common benchmark for our customers. That means if a customer currently makes €100,000 annually now, he or she would need a portfolio that generates between €70,000 – €80,000 in income each year plus annual increases to adjust for inflation.

How to analyse your current and future finances?

We start the financial planning process by providing each of our clients with a detailed personalised “life cashflow”, incorporating their current financial situation and helping them plan for a comfortable future.

We start by analyzing their:

  1. Income
  2. Expenditure
  3. Assets
  4. Liabilities.

We then proceed to project out the likelihood of them meeting their expenditure commitments and goals in the future. We strongly believe that a detailed cashflow is a key precursor to making informed decisions before you decide to invest, top-up your pension, buy that boat, gift your kids or sell that negative equity property. A personalised cashflow helps clients understand how each financial decision could impact their current / future life.

In summary, people need to consider now how long they want to be in the workforce, who they will be responsible for in retirement, all their sources of income (including State Pension) and estimate what their future health costs could be to come up with a clear estimate of their savings needs.

We believe that it’s a decision that should be individually tailored, because everyone’s situation is unique and what they want to do in retirement will be different.

Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth Management, a Financial Planning practice based in 27 Cook Street, Cork. For more information, contact Gerard at

Disclaimer: All data and information provided within this article is for informational purposes only. Heritage Wealth Management Limited makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions or delays in this information or any losses, injuries, or damages arising from its use.