Image source: Getty Images
With the cost of living on the rise, ensuring you have enough retirement income to live comfortably is becoming increasingly essential. And according to the National Pensions and Lifetime Savings Association, individuals need to have at least £43,900 coming in each year or £60,600 for couples.
That’s more than the £31,602 median income for full-time employees in 2024. So, how is the average person supposed to achieve this financial goal?
The good news is that while the current British State Pension is far from sufficient, it does help cover some of the distance by providing roughly £12,000 per year. That leaves a gap of £31,900 for individuals or £36,600 for couples. And by making some smart investment decisions, even modest investors can strive towards unlocking a nice retirement income. Here’s how.
Following the 4% withdrawal rule, investors seeking up to £36,600 in passive income will need a minimum portfolio size of £915,000. That’s a pretty substantial nest egg. But luckily, consistently investing £500 each month might be all that it takes when leveraging the power of a SIPP.
That’s because whenever money is deposited into a SIPP, investors earn tax relief – around 20% for the average person. And £500 after 20% tax relief translates into £625 of investable capital.
Assuming this money is allocated to a FTSE 100 (^FTSE) index tracker, and that the UK’s flagship index continues to generate its long-term average return of 8%, a £36,600 retirement income would be unlocked in just under 30 years.
Of course, in practice, investors might have to wait longer. A poorly timed market crash could temporarily derail the wealth-building process just before retirement. What’s more, if we assume inflation averages 2% over the next three decades, investors will need to earn closer to £66,000 to maintain the same purchasing power. And let’s not forget that the State Pension might also change, not necessarily for the better.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Rather than matching the performance of the stock market, investors can seek to beat it by picking individual stocks. This undoubtedly involves taking on more risk, but it also opens the door to potentially superb returns. And a perfect example of this would be Ashtead Group (AHT.L).
Story Continues
The company was one of the first to recognise that builders were slowly moving away from equipment ownership and towards equipment rental. Capitalising on this trend, the business positioned itself to be the go-to solution on a project-by-project basis. And after dominating the British construction market, it turned its attention to the much larger market of America.
Today, Ashtead is the second-largest equipment rental business in the US that continues to expand into new territories like Canada, as well as new industries like film & TV. And investors who held on through all the ups and downs over the last 30 years have reaped a staggering 7,846% total return.
That’s the same as 15.7% per year – almost double the FTSE 100’s performance. And investing £625 each month at this rate builds a nest egg worth £5.1m, enough to generate a retirement income of £204,000 and beat inflation!
In 2025, Ashtead continues to offer promising potential. The business is undoubtedly sensitive to the cyclical construction sector and exposed to tariff-related supply chain disruptions. But despite these risks, investors building retirement wealth may still want to consider taking a closer look.
The post How much retirement income do you need to live comfortably in 2025 (and beyond)? appeared first on The Motley Fool UK.
More reading
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Ashtead Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2025