This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
How much is enough? That’s the key question hanging over most people’s minds as they near retirement. Perhaps you have a vague idea of what you need (or none at all!), but the reality is most individuals are unclear about their “Magic Number”.
This refers to the total sum of money you’re likely to need for funding your lifestyle throughout retirement. Your Magic Number can shift and may be more of a “range” than a set figure. Yet, it gives you a target to aim at for reaching freedom – i.e. to stop working on your own terms.
At Vesta Wealth, our Cumbria financial planners specialise in helping individuals calculate and reach this number with confidence. In this article, we explore what your Magic Number might look like, why it matters, and how to start moving more constructively towards it.
What is your retirement ‘magic number’?
Your Magic Number is the total amount you need saved to achieve your desired retirement lifestyle. It is highly personal and will likely differ from others depending on factors such as:
- Your unique financial goals (e.g. retirement date)
- Your health and life expectancy
- Your family needs, structure and relationships
- Your estate plan – e.g. to mitigate inheritance tax (IHT)
Various studies have emerged to estimate an average Magic Number. For instance, the Pensions and Lifetime Savings Association (PLSA) calculates that most people need between £330,000 and £490,000 saved for a “comfortable retirement”.
In 2024, research found that a single person requires approximately £31,700 per year for a “moderate” retirement (e.g. one long UK weekend holiday per year), whilst a couple needs around £43,900. However, like all studies, this makes many assumptions – e.g. no dependents or outstanding mortgage to pay off.
These figures are not set in stone. However, multiply them over 30-35 years of retirement, and the need for serious planning becomes clear.
Key assumptions that affect your Magic Number
As mentioned, your Magic Number will be unique. It is important not to judge yours against an arbitrary average or that of others you know.
A financial planner can help you arrive at the most accurate figure for your goals, needs and financial situation. However, here are some key variables that could give you an initial idea of your Magic Number:
1. Desired annual income
Think carefully about what you’re likely to need to live on in retirement. Your current spending can be a helpful guide, but make sure you adjust for any expenses that are likely to change (e.g. commuting, healthcare or travel). Don’t forget to factor in holidays, leisure, gifts and home maintenance. Think in today’s money terms first, then allow for inflation.
2. Retirement age and life expectancy
Your Magic Number depends heavily on when you retire, and how long you are likely to live. Retiring early will require a larger pot of money as it will need to last longer. ONS data suggests that the average life expectancy in the UK is 79 for men and 83 for women. However, many individuals will live into their 90s. To build resilience, consider working with a “ballpark” retirement period of 30-35 years.
3. Expected income sources
Where is your retirement money going to come from? Common sources include the State Pension, defined benefit pensions, rental income and part-time work. Compare these income sources to your annual target to gain an initial idea of any possible shortfall that must be met from your personal savings and pensions.
4. Investment returns and inflation
If you opt for drawdown in retirement, your unused pension funds will remain invested. However, the assumed growth rate (net of inflation) is crucial to your pension longevity. The big danger is overestimating your returns, which could leave you short later in life. A financial planner can help you arrive at some realistic forecasts for your retirement fund.
Why finding your number early matters
Knowing your Magic Number gives you clarity. It empowers you to better assess whether you’re on track, and what adjustments may be needed (e.g. increasing pension contributions, investing more efficiently, or adjusting your retirement date).
Remember, time is your most powerful tool for retirement planning. The earlier you start making preparations, the greater your ability to reap the rewards of compound interest. Here, even small changes have a significant impact over time.
Planning also prevents over-saving, needlessly restricting your lifestyle (due to unfounded fears of not having enough later) or delaying retirement unnecessarily when you might already be able to afford ceasing work.
With a clear, data-led retirement number, you can make informed decisions with confidence.
Final thoughts
Your retirement number is not set in stone. Your life will change, and so will your goals and the financial landscape you find yourself in. Regardless, having a Magic Number gives you a strong foundation to build and adapt your plan.
If you would like a clear retirement forecast tailored to your circumstances, please get in touch to arrange a free, no-commitment consultation with a Vesta adviser.
Your capital is at risk. Investments can go down as well as up. Past performance is not indicative of future results. Tax treatment depends on individual circumstances and may change. Content is for information only and not investment advice. Any decision to invest is the reader’s own. Diversification is key to managing risk. Market volatility affects investment values. Inflation erodes savings. Liquidity risks may prevent quick access to funds.