The Million Dollar Question...How Much Do You Actually Need To Retire? 💷
Finding Your Number — Not Someone Else's
I Worked Hard. But Not Smart. 📖
Until I started university, I don’t think I actually understood how to study properly.
Up until then, I had always worked hard, but not smart.
University was where I became more strategic.
The shift came when I stopped trying to cover and do everything and started asking a different question:
What does the examiner actually want me to answer?
There is no point giving a brilliant response to the wrong question.
Understanding what is being asked — truly understanding it — is the thing that changes everything.
Retirement planning works exactly the same way.
Most people invest into a pension for decades without ever stopping to ask the question that should shape every decision along the way:
How much do I actually need?
Because knowing your destination does not just give you a target.
It tells you whether you are on track and if you are not, it gives you time to do something about it.
Over the past few weeks, we have covered the options available at retirement and done a deep dive on annuities. This week, we zoom in on the number that makes all of it make sense.
What Does Retirement Actually Cost? 💷
Every year, the Pensions and Lifetime Savings Association (PLSA) —D an independent body that represents workplace pension schemes — publishes its Retirement Living Standards.
Their 2025 figures look like this:
These figures give you a floor, not a ceiling.
Your number could be higher depending on your circumstances:
A mortgage or rent still running in retirement
Supporting children or grandchildren financially
Healthcare or care costs later in life
Travel or lifestyle ambitions above the moderate level
Living in London or another high-cost area
Start with the table. Then ask: what would push my number up?
You Probably Need Less Than You Think ☑️
In retirement, your expenses typically fall.
The mortgage is usually paid off. The children have moved out. The commute is gone.
Most financial planners suggest you need roughly 60–70% of your pre-retirement income to maintain a similar standard of living.
That is still a meaningful number but often less daunting than people fear.
The Rule Of 25 🔢
Once you know your target income, there is a simple way to estimate the pot you need.
It comes from the Trinity Study, research conducted in 1998 by three finance professors in the United States. Their finding: a diversified portfolio could sustainably support annual withdrawals of 4% over a roughly 30-year retirement.
Flip that around and you get the Rule of 25:
Target Retirement Income × 25 = Estimated Retirement Pot
Here is how that works in practice:
You want £30,000 a year in retirement.
£30,000 × 25 = £750,000 estimated target pot.
In year one, you withdraw 4% of £750,000 = £30,000.
The remaining £720,000 stays invested, grows, and supports future withdrawals.
It is a useful planning tool. But worth knowing its limits.
It assumes money stays invested. Moving entirely into cash removes the growth that makes the rule work.
Inflation can erode it. A fixed 4% withdrawal does not automatically keep up with rising costs. This is also why investing, rather than leaving money in cash, matters so much over a long retirement.
Life expectancy is increasing. The study modelled 30 years. Many retirements today run 35–40 years.
A note on the FIRE community.
The Rule of 25 is popular in the FIRE movement — Financial Independence, Retire Early — where the goal is to build a pot large enough that you never touch the original sum and simply live off the returns indefinitely. A compelling idea, but an extremely high bar.
For a more traditional retirement, the reality is different. You are not trying to preserve the pot forever. You are trying to make it last 25 to 30 years, which means drawing down some of the original capital is not just acceptable, it is expected.
That makes the number more achievable than it might first appear.
But it also introduces a risk worth naming: if you draw down too quickly, or live longer than expected, you could run out of money. That is exactly why products like annuities — which guarantee income for life — exist alongside drawdown.
The verdict? Use the Rule of 25 as a rough compass, not a precise map.
A note on defined benefit pensions.
If you are in a defined benefit (DB) pension — common in the NHS, teaching, and the civil service — the Rule of 25 is less relevant for you. DB pension holders receive an annual statement showing a projected retirement income based on their salary and years of service. The income is already calculated. The question is simply whether that projected figure is enough for the retirement you want.
Use A Pension Calculator 🧮
A pension calculator brings the Rule of 25 closer to your actual life.
Two tools worth bookmarking:
MoneyHelper — moneyhelper.org.uk
Hargreaves Lansdown — hl.co.uk
Plug in your current pension value, contribution rate, and expected retirement age — and get a projection of what your retirement income might look like.
They move you from guessing to planning.
Where Does Your Retirement Income Come From? 🏛️
Most people’s retirement income is built in layers.
Layer 1: Workplace Pension — The Main Engine
If you are employed, aged 22+, and earn over £10,000 a year, you are likely auto-enrolled. Minimum total contributions are 8% — at least 3% from your employer. That employer contribution is free money.
Layer 2: Personal Pension / SIPP — Flexibility
More investment choice, more control, and the ability to consolidate old pension pots. Particularly useful if you are self-employed.
Layer 3: State Pension — The Top-Up
The full New State Pension in 2026/27 is £241.30 per week — approximately £12,548 per year. You need 35 qualifying years of National Insurance contributions for the full amount.
Check your forecast at gov.uk/check-state-pension.
One important point: the State Pension age has already risen from 60 and 65 to 66 for both men and women. It is legislated to rise to 67 by 2028, and a further rise to 68 is widely expected after that.
That is not a reason to ignore it — for those close to retirement, it remains a meaningful and reliable source of income.
But if retirement is still decades away, treat the State Pension as a bonus rather than a foundation. The goalposts have moved before. They may move again.
Putting It Together 🧩
Step 1: Pick your retirement lifestyle target from the PLSA table.
Step 2: Subtract the State Pension (£12,548 for 2026/27).
Step 3: Multiply the remaining gap by 25 for a rough pot estimate — keeping in mind that if you plan to draw down some capital over time, you may need less.
Example:
Moderate lifestyle target: £31,700 Minus State Pension: £12,548 Gap to fill: £19,152 Rough pot estimate: £19,152 × 25 = £478,800
That is a very different number to £792,500 if you had ignored the State Pension entirely.
And remember — you are not building this alone. Employer contributions, tax relief, and decades of compound growth are all working alongside you.
What If I’m Behind? 🚨
Do not panic. Being behind is not the same as being too late.
Here are practical ways to improve your position:
Increase your contributions — even 1% more now compounds significantly over time. Check if your employer will match any increase.
Review how your pension is invested — many default pension funds are too cautious for younger savers. A more growth-focused investment mix could make a meaningful difference over decades.
Delay your retirement age — working a few extra years both grows your pot and shortens the period it needs to cover.
Build passive income streams — rental income, dividends, or other investments can supplement your pension and reduce the pressure on your pot.
Consolidate old pension pots — lost or forgotten pensions are more common than you think. Tracing and combining them can reveal more than you expected.
Consider downsizing — releasing equity from property is a meaningful option for some people later in life.
Work part-time in early retirement — even a modest income in the first few years reduces how much you need to draw down, giving the pot more time to grow.
Retirement is not won or lost in a single moment. It is shaped by the decisions you make — and adjust — over time.
Final Thoughts 🙏
The million-pound question was never really about a million pounds.
It is about direction.
The earlier you understand your number, the more time you have to change it.
“The plans of the diligent lead surely to abundance.” — Proverbs 21:5
Retirement planning is not about predicting the future.
It is about preparing for it.
Some practical next steps:
Log in to your workplace pension and check your current value
Check your State Pension forecast at gov.uk/check-state-pension
Run your numbers through the MoneyHelper or Hargreaves Lansdown pension calculator
Review your contribution rate — even 1% more today compounds significantly over time
Track down any old pension pots at gov.uk/find-pension-contact-details
