How much pension do I need to retire? 

How much pension do you need to retire comfortably? 

Working out just how much money you’ll need to live comfortably in retirement isn’t always easy. You won’t quite know what your life will look like and there are lots of variables to consider. 

But, if you want to live well in retirement, it’s worth planning ahead and thinking about the amount you might need. 

A good starting point is to look at the latest Retirement Living Standards, published by the Pensions and Lifetime Savings Association (PLSA). 

The table below gives you an idea of how much pension income you’ll need, for three tiers of retirement living standards – minimum, moderate and comfortable. 

The numbers in brackets reflect higher living costs in London. 

Source: Pensions and Lifetime Savings Association (2024)

What is a minimum income in retirement? 

The minimum tier is enough for a ‘budget’ retirement.  It covers the essentials including all your bills, with a little left over to spend on meals out and leisure activities. However, you’re unlikely to have enough to run a car or be able to afford trips overseas. 

What is a moderate income in retirement? 

With a moderate income in retirement, you’ll have a bit more flexibility with your money.  According to the PLSA, you’ll be able to spend more at the supermarket and eating out, run a second-hand car, and be able to afford both a holiday in the sun and a long weekend away in the UK. 

What is a comfortable income in retirement? 

With a comfortable income in retirement, you should have more financial freedom and be able to splurge from time to time. In addition to bigger holiday and shopping budgets, you’ll also be able to spend more on your home, replacing the kitchen or bathroom occasionally too. 

There should also be more left over at the end of the month to treat or support younger generations, if that’s a priority for you. 

How to calculate your target pension income 

The Retirement Living Standards figures are, of course, just estimates. The amount you’ll need to live comfortably in retirement will depend on your own personal circumstances and the lifestyle that you want. 

To work out what you need and whether you’re on track, you’ll need to think about your likely outgoings and your income when you retire.  

Calculating your spending 

Think about what your bills are likely to be, how much you’ll need to spend on travel and how you’ll spend your spare time. Take into account hobbies and leisure time as well as trips and holidays. Don’t forget how much you’ll need for ad-hoc expenses like new clothes and gifts for birthdays and Christmas. 

It can be daunting, but it’s important to bear in mind that your costs will be lower if you have paid your mortgage off. 

Your spending will also change as your retirement progresses.  Typically the early years of retirement are the most expensive, when you’ll be eager to enjoy your newfound freedom. Spending tends to tail off as you get older and less active. 

Calculating your income 

To work out if your savings are on track, the next step is to get an idea of where your future retirement income currently stands.  

It’s likely to come from a variety of sources, including: 

• All your workplace and personal pensions 
• Your State Pension (£11,973 in the 2025/26 tax year, if you get the full amount) 
• Income from other savings and investment accounts, such as ISAs
• Rental income if you own investment property 
• Earnings, if you decide to do some part-time work 

Your annual pension statements should give you an indication of the income you can expect from each pot. If you aren’t sure how much state pension you’ll get, you can request a state pension forecast from the government. 

Maximising your pension income

There are plenty of ways to make the most of your pension when you retire: 

• Pension transfers: Think about combining all your pensions into one pot to reduce your overall charges (and make your income easier to manage). 
• Delay making withdrawals: Avoid making lump sum withdrawals in the run up to your retirement. If you’re going to carry on working into retirement, minimise your pension withdrawals to give you a better income when you really need it. 
• Get a state pension forecast: If you have any gaps in your national insurance record, consider buying voluntary contributions to boost your state pension. 
• Defer your state pension: If you’re in good health and don’t need your state pension as soon as you’re eligible, consider deferring it for a year. This will mean you get higher payments when you do start claiming. 
• Consider your investment strategy: Ensure you’re taking an appropriate level of risk with your pension investments. Taking too much risk could leave you exposed if stock markets falter, but being too cautious may mean you don’t get the growth you need. A balanced approach may work well in the early years of your retirement. 
• Keep money in cash: It’s worth keeping one to three years’ expenses in an easy access savings account. Taking money from this pot will ease the pressure on your pension if stock markets fall. 
• Consider annuities: If you’re worried about stock market performance, or want certainty of income, it may be worth using some or all of your pension to buy an annuity. Annuities pay an income that’s guaranteed for life, but they aren’t as flexible as drawdown. 
• Take a holistic approach to cut your tax bill: Don’t think about your pensions in isolation. Take all of your savings and investments into account when you’re planning your retirement income. Taking money from ISAs, for example, can be a helpful way of boosting your income, without increasing your tax bill. 
• Consider advice: Tax-effective retirement income planning can be complicated, especially if you have income from multiple sources. A financial planner can help you structure your retirement income, in the best way for you. 

How to plan your perfect retirement 

Invest in a pension  

Pensions provide a great way to save for retirement and help to deliver the income you’ll need when you finally finish work. 

Most people will be automatically signed up to a workplace pension and have contributions deducted from their earnings. Your employer will make contributions on your behalf too. However, if you’re self-employed, it’s still easy to get saving for retirement with a personal pension such as a SIPP. 

Whatever your circumstances, if you want to have a comfortable retirement, it’s important to have a goal. By thinking about how much pension you’ll need in retirement now, the more likely you are to achieve it. 

Make the most of tax benefits 

The big draw for pensions is that your contributions will be boosted by tax relief from the government. Your tax relief is equivalent to the rate of income tax that you pay: a 20% basic rate taxpayer gets 20% tax relief. It only costs a basic rate taxpayer £80 to invest £100 into their pension, thanks to £20 in tax relief. While higher and additional rate payers only need to pay £60 or £55 to invest £100. 

For most personal pensions, including SIPPs, basic rate tax relief (20%) is applied automatically. Higher- and additional-rate taxpayers must claim the further 20% or 25% that they are entitled to through their self-assessment tax return. Some workplace pensions will give you the full rate of tax relief automatically, but not all will, so it’s important to check with your employer if you’re not sure. 

The tax benefits of pensions don’t stop there. Your money will also be sheltered from tax as it grows. That means there won’t be any tax to pay on your dividends and no capital gains tax to pay on your growth – meaning you get to keep more of your investment returns. And, when you do retire, you’ll be able to take 25% of your pot as a tax-free lump sum too. 

Start saving early  

Pension rules mean eligible workers will be signed up to workplace pensions from the age of 22. Though it’s best to start saving – and planning – for retirement as soon as you start earning, the tax benefits of pensions mean it’s never too late to give your retirement a boost. 

The longer you have to let your money grow, the more you stand to benefit from the compounding of your returns. This is where the money you make on your investments is reinvested, boosting the value of your pot further. Compound returns is a powerful driver of investment growth and means the younger you are when you start saving, the less you’ll need to save overall. 

How to meet your pension income goals 

Saving enough for retirement can feel overwhelming, but by setting a goal and making a plan, you’re more likely to get the retirement income you want. 

Here are a few more tips to give your pot a boost: 

• Whether you’re employed or self-employed, make the most of your annual allowance (up to £60,000 a year) and pay as much into your pension as you can 
• If you’re employed, find out if your employer will match any increases you make to your contributions 
• Consider paying work bonuses into your pension with bonus sacrifice
• If you’re the director of a limited company, think about making pension contributions from your company accounts to reduce your corporation tax bill
• If you can afford to pay in more than the annual pensions allowance, you may be able to take advantage of carry-forward rules and use any unused allowance from previous tax years 
• Pay attention to your pension charges – by transferring your retirement savings into a lower-cost SIPP, you’ll get to keep more of your investment returns 
• Take advantage of the wide range of investments offered by SIPPs to ensure your pot is able to deliver the growth you need 
• Think about saving into a Stocks and Shares ISA as well as a pension – you won’t get tax relief on contributions, but all withdrawals will be tax-free, providing an efficient way of boosting your retirement income