Prosperous retirement – how much will it cost?

As we go through our adult life, there are a few basic questions that we want the answer to. Perhaps one of the most important is simply how to measure what we are going to need for a prosperous retirement.

Asking the question is easy. Answering it is more difficult. After all, we all have different aspirations and perceptions about what our lives should be like in retirement. But just because it is difficult to answer doesn’t mean we shouldn’t try… so here goes.

Henry David Thoreau had it summed up when he said:

“The man is the richest whose pleasures are the cheapest”

So how much you need will depend to a huge extent on how you choose to live. That’s only a small part of the story, however.

To simplify things let’s consider the two interconnected halves of our life. Adult life up to retirement – when the prime focus is to build your retirement fund as large as possible. Then the second stage of life after retirement when the focus switches to taking as much income as possible. Developing a strategy for a prosperous retirement includes deep consideration of both parts of this equation.

In this article I want to address at a high level the ten key aspects that will need to be factored in to your specific circumstances before you can answer the question that heads this article, viz “how much will your prosperous retirement cost?

What is a prosperous retirement lifestyle?

Retirement Plan

This is perhaps the single biggest factor in determining the money you need. Do you plan to live the same lifestyle as when you were working? If the answer is truthfully “yes”, then you are likely to need pretty much the same money.

Of course there are some elements of lifestyle that tend to reduce with age. You may have children who are no longer dependent. You may decide that you don’t want or need the same family home and are happy to downsize. Your travel plans may change and maybe you won’t want the large executive car you run.

On the other hand you might decide to take up luxury travel, vintage wine collecting or any number of other pursuits which can surely use up the money quickly.

There is no right or wrong here. A prosperous retirement is, in my view, the ability to do what you want more or less when you want. A good starting point is to analyse exactly what kind of retirement you want, and attach costs to it.

A word of warning. Many people think they can have the same lifestyle on a lot less money just because they are retired. It’s true that older people may have concessionary prices, and may save money – for example – by travelling out of season. But generally speaking it is easy to overestimate the lifestyle you can live on the money that you have.


If you have managed to pay off your mortgage prior to retirement, or you downsize to a smaller property with no mortgage, you could find a significant decrease in your expenses.

However, it can be a mistake to pay off your mortgage. Suppose your mortgage interest is 3% a year, and you can achieve 8% a year from investment. You could pay your mortgage and have 5% left over. On a sum of £100,000 that could be earning you £5,000 a year which is a considerable sum.

So by paying off your mortgage you may deprive yourself of income towards the lifestyle that you want!

Age at Retirement

Your age at retirement has two major influences on the money you will need. This has a direct bearing on the size of fund you need at retirement and also the productivity of your investments after retirement.

Firstly, the younger you retire the longer the term of years that you have to prepare for, and the greater the impact of inflation.

Secondly, the younger you retire the longer the active phase of retirement is likely to be, which to be frank is likely to be more costly.

Longevity impacts your prosperous retirement

The great imponderable! Are you going to live until 95, or die at 70? Your genetic history and current state of health may provide some clues, but it is impossible to know for sure.

A prudent approach is to add about 33% to the statistical estimate of longevity. For example, a man age 65 now can expect to live 18 years in retirement. This person should plan on living 18+6 = 24 years in retirement, that is to 89! Your finances are going to have to s-t-r-e-t-c-h a fair way.


The biggest variable is your health. It doesn’t just impact your longevity, but may impact the type of retirement you can lead – for example by restricting travel or sports. This might reduce your costs for at least a period of time.

On the other hand if you need significant medical interventions, or  full time care, the costs can rocket.


If we go back a generation, many people retired at around 65 and then sadly died before they were 70. Even if inflation was rampant, living for just a few years the impact could broadly be ignored.

No more.

As we have seen, it is not unreasonable to plan for 25 years in retirement – more if you are female. And inflation is going to kill your plans unless you factor this in.

As a rough guide, in just the last 14 years the impact of inflation has been that you need almost 50% more money to purchase the same goods and services. What’s it going to be like after 25 years?

Income Sources

How certain are they and can they accommodate inflation? You may have a pension which does NOT increase with inflation. Or you may have unreliable investments that have enormous volatility, or investments in a business which is struggling.

I’d say that there are many scenarios in this section where prudent investment and pension planning can really pay dividends. My company is totally focused on assisting clients to develop investment portfolio’s that aim to avoid these potential ups and downs and provide regular, secure income.

So please contact Avantis Wealth, and request a complimentary pension or retirement review.

Retirement Fund

The capital value of your retirement fund, whether invested directly or via a pension, is the engine that will drive your retirement. So it is critical that you grow this as much as possible during your working years. A great part of my business is assisting clients to improve the return on their funds, so that they can look forward to a much larger fund in retirement.

Here’s a quick illustration of the difference that a successful investment policy can make to a fund over a 20 year period. Say you have £100,000 invested and you achieve a return of 2% annually. Your fund would be worth £148,600, an increase of £48,600.

But if you are able to achieve a growth of 8% a year (very normal for my clients), then your fund would have grown to £466,100, an increase of £366,100.

Can you imagine the difference that would make to your retirement plan?


This may have a massive impact on the funds you need in retirement. Why? Because if you want to leave assets to your inheritors then you will need to live off the income in retirement.

And if you don’t want to leave funds, you can spend the capital as well as the income!

The difference this can make to your quality of life may be considerable.

Of course, it’s not a black or white situation and you can change your mind as your retirement unfolds. Maybe you start with good intentions, but inflation is higher than you imagined, one of your investments goes poorly and you are living to an age way beyond what you anticipated. In this situation you might start using capital.

Bringing this all together…

By now you have realised that planning for retirement involves many challenging and uncertain decisions. It is a process that frankly needs detailed consideration and research – and maybe the involvement of a professional advisor. I do half-day consultancy programs specifically focused on planning for retirement if you want some outside help.

To get you started, here’s a few generalisations which may help you take a broad view:

For any given retirement fund, the later you retire the better off you will be. Not just because you have less years to live, but because your retirement fund has longer to grow.

For the active phase of retirement – when you still have your energy and drive to enjoy travel and physical and social activities, retirees often find that they are spending about the same money that they earned in the years before retirement. That’s an easy equation to think about but can be very hard to make happen!

Your lifestyle tends to be based on the income that is available. So whatever you actually end up with, you’ll have to make the best of it.

Prosperous Retirement is a state of mind. It’s remarkable what a great quality of life many retirees manage to have on what many people would consider a relatively low income.

The retirement action plan

Here’s seven points to consider when planning for your prosperous retirement:

What kind of retirement lifestyle do you want? “Bigger is better”, or “Small is beautiful”?

Make sure you have written down in detail every aspect of your current expenditure budget, then use it as a basis for estimating your retirement budget.

Separate what you consider “essential” expenditure – what might be considered “need to have”, from “discretionary” expenditure – “like to have”. For most people there will always be items they consider essential that other people would consider discretionary!

How much of your budget is not impacted by inflation? For example, if you have mortgage payments they relate to the current value of the loan, and are probably not impacted by inflation. In fact borrowings are impacted favourably by inflation since you will be paying back the loan in depreciated currency!

Do a detailed analysis of your income sources for retirement. Are they performing as well as possible? If you have a frozen or underperforming pension ask me to arrange a complimentary pension review.

I hope you have found this article useful as a primer for Retirement Planning. I’d say that even if you have 20 years or more to retirement, the sooner you start planning the better the final result will be.

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