How much do you need to earn to retire?

Money can’t buy happiness, but we’d be lying if we said it didn’t help. Whatever you dream of – whether it’s having a new car, a huge house, or just enough to pay off your student debt – the right amount of cash can make it so.

However, it’s important to remember that ‘wealthy’ means different things to different people. Some measure wealth by how much money they have in their pockets, while others measure it based on how much they have to be grateful for in their everyday lives.

When it comes down to the pure finances you need to step away from a life of work and retire – one of the common financial goals people aim for – it is possible to at least quantify the amount of capital required. Here we’ll run through the various ways you can make enough cash to retire, and how much of a factor education is in achieving that goal.

How much income do I need in retirement?

The aqua sea and white sand beach with speedboat

Shutterstock

If you long for the luxury of not having to work and spending your days on holiday or on the golf course, saving for retirement now is a good plan. On average, you need to make between £23,000 and £27,000 per year in retirement to enjoy a comfortable living. Of course, this amount varies depending on your pension and industry.

If you want to retire at the ripe age of 55 (as opposed to the average of 65) and still be earning that sort of cash without working – you should probably start saving now. A good estimate for the average 25-year-old graduate is to save around £293 per month every year to acquire that type of earning in retirement.

Not everyone retires at 55 – some people actually manage to call it a day in their 30s. Just look at Sophie Madison, who managed to save a massive $2 million by 30. How did she do it? By saving the earnings she made in her business, combined with an investment in tax-free bonds. So look into other ways of saving beyond just sticking cash in your ISA.

Does it matter if I have a degree?

Students throwing hats at their graduation

Shutterstock

If you went to university, you’re statistically more likely to earn more cash (and therefore have a greater chance at retiring early) than someone who didn’t. Graduates are usually met with more rewarding and higher-paid job opportunities, while non-grads are often faced with a more difficult time in reaching anything close to early retirement.

The facts speak for themselves. Female graduates earn £250,000 more in their lifetime than non-graduates, while male graduates earn around £170,000 more. However, let’s not forget the fact that as soon as graduates land their dream job, they’re usually hit with student tuition fees plus high-interest rates of around 6.1%. You don’t need a degree to work out that this is 6.1% of your income you won’t be able to save for retirement.

The amount a graduate earns in comparison to non-grads also depends on factors like which university went to and which industry they’re working in. For example, graduates with a degree in the creative arts usually don’t make any more than non-graduates – so it’s not always the case that a person with a degree will earn more than someone who decided to defer from attending college.

A smart way to ensure early retirement is to go into an industry that you know pays well. Just take a look at the average salary of someone working in investment banking – it’s around £47,000. At the other end of the scale is journalism, which pays around £20,000 per year when you’re just starting out. Sports and recreation roles are also on the lower side of the income spectrum at around £15,000 per year.

So while having a degree is generally better than not, the type of degree also makes a huge difference to your income – and therefore how much you can expect to save for retirement.

How much do I need to win to retire?

Don’t worry – if you don’t have a degree, there are still ways of earning the annual £23,000-£27,000 you need to live comfortably without working. So when it comes to knowing the generic figure of money you need to retire, just do the maths to work out how much you’ll need to quit work at a certain age. If you plan on living until 90 but want to retire at 40, for example, £1.3 million will be enough to see you through the intervening 50 years without work. That’s assuming you’ve paid off your mortgage and have no debts, of course.

This is one of the reason many lottery winners quit their jobs and never work again. It’s not a surprise considering most winners receive upwards of £1.3 million – and who can blame them? They’ve got the financial freedom to chase their dreams without the shackles of employment to hold them back.

A recent study showed that the average Brit would prefer to win at least £5.4 million before giving up work. If they did win a substantial amount of money, only 36% of people would continue working after winning. Many people stated that they would like to change careers given the opportunity while keeping their winnings a secret from their old bosses (83% of Brits).

Summary

If you want to earn enough to leave work for good and retire early, you’d better start saving now. The more you set aside, the faster your pension pot will grow – so feel free to make overpayments as this will all count towards having more money come retirement.

If you plan your finances right, you could be lucky enough to hand in your resignation earlier than your peers, but again, it all depends on where you work and your level of education.

  • 10678531520930918