If retirement is starting to feel a little closer, you may have found yourself looking at your pensions and savings and wondering: is this enough?
There are some useful figures to compare against, but whether you have enough depends on when you want to retire, how much you want to spend and where your income will come from.
What does a comfortable retirement cost?
The Retirement Living Standards currently estimate that a comfortable retirement costs around £45,400 a year for one person and £62,700 for a two-person household.
It’s worth remembering that these figures show what a household might spend over a year, rather than the income you would need before tax. They also assume you own your home outright, so if you expect to still be paying rent or a mortgage in retirement, you’ll need to add that separately.
You’ll also need to think about any plans that sit outside your usual spending. This could include improving your home, helping family, making gifts during your lifetime or leaving an inheritance. The standards are a useful place to begin, but costs like these will need to be built into your own calculations.
Start with what you want to spend
Before you can work out how much you need in your pension, you need a rough idea of what you’re likely to spend each year.
Start with your usual monthly costs, then think about what else might come up over the years. The unexpected costs can easily be missed when you only look at a monthly budget, but they can make a big difference to how much you need in total.
You probably won’t spend the same amount every year either. Many retirees spend more during the earlier years, when they’re travelling and doing more of the things they’ve planned. Their spending may then ease off as they get older, so it makes sense for your plan to allow for that.
Then look at what you’ll have coming in
For many, the State Pension will cover part of what they need. You may also have a defined benefit pension through an employer, rental income or another regular income alongside your pensions and investments.
For the 2026/27 tax year, the full new State Pension is £241.30 a week, or around £12,548 a year. A couple receiving the full amount would have just over £25,000 a year between them. However, the amount you receive will depend on your National Insurance record.
You’ll also need to check when each income begins. If you retire before your State Pension or workplace pension starts, your savings and investments will need to cover the gap. This can be easy to overlook when you’re focusing on the income you’ll have later.
How big does your pension pot need to be?
Say a couple wants an income of around £60,000 a year after tax. If they had no other income and used the common assumption of withdrawing around 4% a year, the maths would point to a pot of approximately £1.5 million in liquid assets.
That’s a big number, but the calculation assumes the full £60,000 has to come from their own assets. In practice, they may also have State Pensions, defined benefit pensions or rental income coming in.
The 4% figure is not a fixed rule either. How much you can sustainably withdraw will depend on when you retire, how your investments perform, inflation, tax and whether your spending can change from year to year.
You may not need to keep your capital untouched
One other thing to decide is whether you want to keep your assets at roughly the same level throughout retirement, or whether you’re comfortable using some of that money over time.
If leaving an inheritance is important to you, you may want to preserve as much as possible. Or you may prefer to use more of the money yourself, as long as the plan shows that it should last.
After spending most of your working life putting money away, seeing the balance start to fall can take some getting used to. You may know the money is there to support your retirement, but it becomes easier when you understand how much you can draw and still have enough for the years ahead.
So, how much is enough for you?
It all comes down to three questions:
- What income do I want?
- When do I want it?
- Where will it come from?
Even rough answers can give you something useful to work towards. From there, you can bring together your pensions, savings, investments and future income, identify any shortfall and work out what you may need to save each month or year.
If you’d like help working out your own figure, get in touch today.
