Translating Lifestyle Goals to a Savings Target
In our previous newsletter, we started our “What’s your ‘Why’ for retirement?” series, to help you answer some important questions about the lifestyle you want in your later years, and how you can achieve it.
The first instalment explored the importance of setting goals in retirement and how to decide what your priorities are. This month, part two will consider how you might begin turning those goals into a retirement plan and creating a savings target.
Read on to learn more.
Defining Your Retirement ‘Why
Creating a retirement budget gives you an idea of what level of income you will need to generate each year. Now that you have a picture of the kind of retirement you want, it could be useful to create a budget and get an idea of how much it will cost to fund your lifestyle.
Your regular outgoings, that you’ll need to budget for monthly, might include:
- Mortgage payments
- Utility bills
- Groceries
- Eating out and socialising
- Travel (including the cost of running a car).
As well as these ongoing expenses, there might be larger costs linked to important goals. For example, you may want to financially support family members, buy a second home, or even start a business in later life. You will need to consider these one-off expenses when creating your retirement budget.
Once you’ve added up all your expenses, you should have an idea of how much income you will need to generate each year to maintain your lifestyle. Naturally, this varies from person to person, but the Pensions and Lifetime Savings Association estimates that the annual cost of a “moderate” retirement is £31,300 for a single person and £43,100 for a couple.
This cost covers a comfortable lifestyle with enough for a week-long European holiday each year, and some funds to support family members. If your “Why” for retirement involves a lot of travel or other expensive goals, you might need a much higher income.
Converting Lifestyle Aspirations into Financial Goals
It’s important to consider how long you might need to fund your retirement. Once you know how much your lifestyle will cost each year, it’s important to consider how many years you might need to generate that level of income for.
For example, the Office for National Statistics (ONS) reports that the average life expectancy for a 50-year-old man is 84 and a woman of the same age can expect to live to 87. So, if you planned to retire at 65, you might need to fund your retirement for 20 years or more.
Using the estimates for a moderate retirement discussed earlier, you would need £862,000 to maintain your lifestyle for 20 years. Your figure will be different from this, depending on the kind of lifestyle you lead.
It’s also important to note that you could live for longer than the average person, so for planning purposes, it’s probably best to assume that you will.
You may need to factor the cost of later-life care into your retirement plan
If you get ill in your later years, you might require care. This could be in your own home or, in some cases, you may need to move into a residential facility.
This can be extremely expensive. Agespace reports the average cost of a residential care home in the UK in 2025 is £1,160 a week, rising to £1,410 if you require nursing care.
The local authority only offers support with care costs when the total value of your assets – including your home – falls below £23,250. This means that, if you don’t have the funds to pay for care, you may be forced to sell your home and use the proceeds to cover the cost.
This could make it more difficult to achieve your goals in retirement, so it may be useful to build additional wealth now to cover potential care costs. If you don’t require care, you can look at tax-efficient ways to pass these extra funds to your beneficiaries when you’re gone.
Inflation could reduce the spending power of your savings over time
When deciding how much income you need to draw to fund your dream retirement, it’s important to consider inflation. This is because, as the cost of goods and services increases, you may need to generate a higher income to maintain the same standard of living.
For instance, if inflation is 2% – the Bank of England’s (BoE) annual target – the same goods and services that cost you £30,000 a year ago, would now cost £30,600.
As we have seen in recent years, inflation could far exceed this 2% target, meaning you may need to significantly increase the level of income you draw in the future. As some level of inflation is typically considered an important part of a well-functioning economy, it’s likely that prices will continue rising.
That’s why it’s important to account for this when planning for retirement, so you can still draw the necessary income to achieve your “Why”.
Professional advice can be valuable here. We can use cashflow planning to predict how inflation might affect the spending power of your savings in the future, helping you create a savings target and build wealth to meet it.
This could mean that you have adequate savings to achieve your “Why” for retirement without making any sacrifices.
So what’s YOUR ‘why’ for retirement?
If you’re curious about what retirement really looks like for people like you, take a look at our latest white paper. In it, we explore the goals, dreams, and ‘Whys’ that have shaped our clients’ retirement journeys—and how expert financial planning helped turn them into reality. Ready to be inspired? Download your copy of our white paper.
Get in touch
Building wealth and creating a clear budget could help you achieve your “why” for retirement. We can support you with this.
Email hello@fcadvice.co.uk or call 0333 241 9900.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.