Retirement guide
How much do I need to retire?
There is no single pension pot that everyone needs. The useful question is how much your retirement is likely to cost, what secure income you expect to receive and how much of the remaining gap must be met from pensions, savings and investments.
Step one
What do you actually expect to spend?
Retirement income planning begins with expenditure. Some costs may fall when work ends, while others can rise because you have more time for travel, hobbies and leisure.
Essential spending
Housing costs, utilities, food, insurance, transport and other regular commitments.
Lifestyle spending
Holidays, eating out, hobbies, gifts, entertainment and other discretionary spending.
Irregular costs
Cars, home repairs, replacement appliances and larger one-off purchases.
Later-life changes
Spending can change again later in retirement, including possible care, support or housing costs.
Step two
What income will arrive without drawing from investments?
Secure or predictable income can reduce the amount that needs to be drawn from invested assets. This may include the State Pension, defined benefit pensions, annuity income or other dependable income sources.
Your entitlement depends on your National Insurance record. The official Government forecast can show your expected amount and State Pension age.
Step three
Work out the gap your pensions and investments need to fill.
That gap is the amount that may need to come from defined contribution pensions, ISAs, savings, investments or other assets.
The calculation should normally be considered after tax because pension income, State Pension and other taxable income can interact.
Time matters
Retiring earlier usually means funding more years.
If you stop work before State Pension or other secure income begins, your private assets may need to fund the whole or a larger part of your spending for an initial period.
Retirement planning also needs to allow for uncertainty around lifespan. A plan built only to a fixed average life expectancy can leave little room if you live longer than expected.
Investment & inflation
£1 of retirement income today will not necessarily buy the same amount later.
Inflation can increase the cost of maintaining the same lifestyle over time. At the same time, pensions left invested can rise and fall in value.
That means the retirement plan needs to consider both how much is withdrawn and how the remaining assets are invested. Poor investment returns early in retirement, combined with withdrawals, can have a particularly damaging effect on how long a portfolio lasts.
Cash-flow modelling can test different assumptions, but future investment returns, inflation, tax, spending and longevity will not follow a model exactly.
Build the picture
A practical retirement check uses all of the moving parts.
Set a retirement date
Decide when you would ideally stop or reduce work, even if it is only a starting assumption.
Estimate spending
Separate essential spending from lifestyle and irregular costs.
List future income
Include State Pension, defined benefit pensions and other reliable income at the ages they are expected to begin.
Bring together your assets
Include defined contribution pensions, ISAs, savings, investments and other resources that could support retirement.
Test the plan
Consider tax, inflation, investment returns, withdrawals and what happens if assumptions are less favourable than expected.
Personal retirement planning
Want to know whether your current position can support the retirement you have in mind?
A personal retirement plan can bring together your expected spending, pensions, State Pension, savings, investments and retirement timing.
Book a conversationThis guide is for general information only and is not personal financial, investment or tax advice. Retirement projections depend on assumptions and future outcomes can differ materially. Pension and tax rules can change.