How to plan for a 40-year retirement

Have you considered that you might live to 100 years old?

According to data from the Office for National Statistics, there were 625,000 people aged 90 years and over in the UK in 2024, of whom 16,600 were centenarians. This figure has doubled since 2004.

If the trend continues, there may be more than 30,000 centenarians living in the UK by 2044.

A longer life is a wonderful prospect, but your retirement savings will need to be substantial enough to support you throughout it.

Continue reading to discover how to calculate the cost of a 40-year retirement and how a financial planner can help streamline the process using cashflow planning.

First, understand the cost of your dream retirement lifestyle

To calculate how much you might need to fund 40 years of retirement, you first need an idea of what your ideal lifestyle looks like.

You can do this by asking yourself questions about your retirement expectations, such as:

• How many holidays do I want to go on each year?
• Do I want to eat out once a week or more?
• How much money do I want to gift to my loved ones each year?
• Would I like to downsize my home in retirement?
• Will I have any debts to pay off, such as my mortgage?

You may wish to continue the standard of living you have now and use your existing income as a benchmark. Alternatively, the Retirement Living Standards offer useful insight into the different factors that can influence your standard of living. They also provide guidelines for minimum, moderate, and comfortable retirement lifestyles.

For example, for a comfortable lifestyle, the report suggests that individuals would need £43,900 per year, or £60,600 for couples. This includes:

• An annual clothing budget of £1,548
• 12 gifts (worth £50) each year and another 12 for Christmas
• A two-week holiday in the Mediterranean plus three long weekends in the UK.

While it’s useful to use this data as a guide, you may have unique ideas that don’t fall into a one-size-fits-all retirement plan, like gifting wealth to the next generation or being proactive about saving for later-life care.

Read more: Giving while living: 3 reasons to slow down and make a plan

Plus, it’s important to remember that as costs rise each year, basics and luxuries become more expensive.

Use your annual income expectations to calculate the size of your 40-year pension pot

Now that you have outlined your retirement lifestyle, you can calculate your predicted annual retirement income – what you expect to spend in an average year of retirement.

Using this figure, you can then estimate how large your 40-year pension pot will need to be to support you throughout your long retirement.

For example, according to the Retirement Living Standards, a “comfortable” couple will need £60,600 annually. So, multiplying this annual figure by 40 years would equal a retirement pot of £2,424,000.

It’s important to note that this simplified calculation doesn’t account for factors like withdrawal rates, annuity rates, or inflation, so it shouldn’t be used as an exact benchmark. For a more accurate estimate, it’s recommended that you seek professional advice.

Once you’ve calculated the necessary size of your pot, you’ll need to measure the difference between this figure and your current estimated retirement fund.

Consider whether your current savings and investment strategy will be enough

Your retirement pot will likely be primarily composed of your private or workplace pension and State Pension, provided you have sufficient qualifying years of National Insurance contributions (NICs). It can also be boosted by:

• ISAs
• Investments
• Dividends
• Property income (rent)
• Inheritance

Combining these income sources can help you calculate the predicted size of your retirement pot. If there is a shortfall, you may need to recalibrate your current financial plan to account for this difference.

For example, if your current pot is estimated to reach £1.2 million, but your 40-year retirement pot needs to be £1.5 million, you’ll need to factor an extra £300,000 into your current savings and investment plan.

This could involve increasing your pension contributions or bolstering your investments.

Because there are a variety of income sources to consider, it may not be easy to calculate how much you will have to live on in retirement. This is where the value of professional advice comes into play.

Use professional advice to improve your retirement planning accuracy

A financial planner can help you build a vision for your future by taking a holistic approach to your retirement plan.

We will ask you comprehensive questions about your future lifestyle expectations and conduct a thorough analysis of your finances.

Moving past guesswork, we use cashflow modelling to provide data-driven projections for your income at retirement, measuring your expectations against reality and helping you adjust your savings and investments today if needed.

Remember that even as you make withdrawals during retirement, your remaining funds may also grow during these years if managed smartly. Cashflow planning can account for this, as well as potential erosions of your wealth caused by inflation and stock market volatility.

This tailored approach can remove much of the legwork while taking advantage of sector-leading financial knowledge and software to present a detailed and accurate prediction of the future.

Get in touch

If you want to ensure that your retirement plan is ready to support a long life, get in touch with one of Kellands’ award-winning financial planners today.

Email us at hale@kelland.co.uk or call 0161 929 8838.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

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.

Your pension income could also be affected by the interest rates at the time you take your benefits.

The Financial Conduct Authority does not regulate cashflow planning.

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