The UK government have just announced that the retirement age will rise to 68. Now admittedly this is not going to happen until 2044 but its already concerning people.

What does this really mean though? The Government retirement age is the age at which you can start drawing a state pension. This means that if the state pension is the only thing you are relying upon to provide your income when you stop working then youll have to keep working until you are 68.

However, you can retire at any age you want. Its just that you need to have enough saved to provide you with an income you can live on. The new rules on private pensions will allow you to start drawing an income from your pension from the age of 55 (after 2010) even if youre still working.

This means that if youve saved enough in your pension fund to provide an income to live on at 55 then you can stop working then. If youve saved enough money outside of your pension then you can stop working whenever you have enough to live on.

The key thing to remember is that whatever you choose to live on, it has to last you for the rest of your life. So the earlier you start to take it, the longer it has to last. And if youre using it to buy an income plan, such as an annuity, then the rate of income youll get will be lower if youre younger.

How do you figure out how much is enough to live on and how much you need to retire.

An easy rule of thumb is to assume that you could generate an income of 5% on any overall fund that youd saved. This means that if you want an income of 20,000 a year then you would have to save a fund of at least 400,000. And with inflation at 2.5% thats going to need to be more like 800,000 in 30 years time to get the equivalent of 20,000 in todays money.

If you want to compare these figures to the State pension, which is currently at 84.25 a week, then to get an equivalent income of 4,381 per year, youd need a fund of around 87,620. Once you have that much youd be about as well off as you would depending on the State system. You could save that much in 30 years if you put away 87 a month at a 6% interest rate. Thats just over 3% of the average income for the UK.

So you dont have to work until youre 68 if you dont want to but youll have to put in the time and effort now to make sure you can support yourself when you want to retire. Its up to you, and nows the time to make the decision, because the longer you wait the harder it gets.