It’s one of the most important financial questions you’ll ever ask, and one of the hardest to answer. There’s no single figure that works for everyone, because the answer depends on the lifestyle you want, when you plan to stop working and what other income you’ll have. But there is a sensible way to work it out.

Start with the lifestyle you want

Rather than starting with a pension pot figure, begin with what you’ll actually spend. Think about:

• Essential costs: household bills, food, council tax, transport
• Housing: will your mortgage be paid off, or will you still be paying rent or a mortgage?
• Lifestyle: holidays, hobbies, eating out, helping family
• One-off costs: a new car, home improvements, or later-life care

Industry research, such as the Retirement Living Standards published by Pensions UK (formerly the PLSA), sets out example budgets for minimum, moderate and comfortable lifestyles. These can be a helpful benchmark, but your own budget is the best guide.

Factor in the State Pension

The full new State Pension provides a foundation of guaranteed, inflation-linked income, although it’s unlikely to cover a comfortable retirement on its own. You usually need 35 qualifying years of National Insurance contributions to receive the full amount, and at least 10 to receive anything. State Pension age is currently 66 and is rising to 67 between 2026 and 2028. You can check your forecast on the government’s website.

Work out the gap

Subtract your expected State Pension, and any other guaranteed income such as a defined benefit (final salary) pension, from your target annual income. The remainder is what your personal and workplace pensions, savings and investments will need to provide.

Remember that retirement can last 25 years or more, and inflation will increase your costs over that time.

Don’t forget tax

Pension income above your personal allowance is usually taxable, including the State Pension. You can normally take up to 25% of your pension savings tax-free, subject to limits, but the rest is taxed as income when you draw it. Planning how and when you withdraw money can make a real difference to how long it lasts.

If you’re behind

• Increase contributions, especially if your employer will match them.
• Make use of tax relief, which effectively tops up what you pay in.
• Track down old pensions from previous jobs.
• Review your investments to check they’re appropriate for your time horizon and attitude to risk.
• Consider working a little longer, or phasing into retirement part-time.
• Check for gaps in your National Insurance record, which may be possible to fill.

The earlier, the better

Thanks to compounding growth, money you save in your 20s, 30s and 40s has much longer to grow than money saved just before retirement. But it’s never too late to improve your position.

State Pension rules, pension access ages and tax allowances are set by the government and can change. The minimum age for accessing most private pensions is due to rise from 55 to 57 in 2028.

The value of investments can go down as well as up, and you may get back less than you put in.

We can help you work out a realistic retirement target, review your existing pensions and build a plan to get there. Get in touch for a free consultation.