Why it’s so vital to figure out how much income you’ll need in retirement

As you imagine what your life might look like after you stop working, you likely already have some ideas about how you wish to spend your time.

While it’s easy to picture what you want to do, it’s often harder to identify what this lifestyle might actually cost. If you feel this way, then you’re certainly not alone.

Research from PensionsAge reveals that 83% of British adults underestimate the annual income recommended for a single pensioner living a moderate lifestyle by at least £10,000.

If your retirement plans are built on inaccurate figures, you may find that you prematurely exhaust your pension fund and other income sources, compromising your future standard of living.

Alternatively, if you overestimate savings figures, you might limit your lifestyle now when you don’t need to. This could even unnecessarily leave your loved ones with a larger-than-expected Inheritance Tax bill in the future.

This is why it’s essential to determine what “enough” means to you.

Continue reading to discover how you can identify how much income you’re likely to need in retirement, and how you can bridge any potential shortfalls.

It’s trickier than you may think to determine how much is “enough” for retirement

With so much information out there regarding saving for retirement, it can be tempting to rely on broad advice to determine how much you should save.

For instance, you might come across various rules of thumb, such as that you should:

• Have roughly 10 times your final salary by the time you retire

• Contribute at least 15% of your pre-tax income to your pension

• Aim to contribute half your current age as a percentage of your salary.

  
  

Meanwhile, the Pensions and Lifetime Savings Association gives more specific figures, stating that a couple might require a yearly retirement income of:

• £21,600 for a “minimum” retirement

• £43,900 for a “moderate” retirement

• £60,600 for a “comfortable” retirement.

While these rules of thumb and benchmark targets might offer a helpful starting point, it’s vital to remember that they rarely reflect your own circumstances.

Your retirement lifestyle, spending patterns, and health are all unique to you, which means your income needs will likely be as well.

This is why it is usually beneficial to go beyond the generic advice and figure out how much your own retirement may realistically cost.

You may want to take steps now to identify how much you realistically need

A helpful first step in building an accurate plan is to visualise what you want your retirement to look like.

You might have long dreamed of a round-the-world holiday, renovating your home, or even moving to a dream property.

You might simply want to spend more time with your loved ones or try your hand at hobbies you previously didn’t have time for.

Once you’ve established your goals, you may find that it’s much easier to determine how much it will realistically cost. This, naturally, helps you to turn it into numbers.

It could be beneficial to create a detailed budget that includes your current spending, including:

• Mortgage payments

• Utility bills

• Food costs

• Personal expenses

• Transport.

Just be sure to think about how these might change in the future, as you might end up spending less on transport costs if you’re no longer commuting to work.

You could then compare this projected budget against your existing pension wealth, such as your:

• Private pensions

• State Pension

• Workplace pension

• Savings and investments

• Property wealth.

  
  

It’s important to account for longevity, too. According to the Office for National Statistics, 65-year-old men in the UK in 2023 can expect to live a further 19.8 years, or 22.5 years for women.

This could mean that you will need to fund your retirement for longer than expected, resulting in you requiring a larger pension fund.

There are several ways you can bridge a pension saving shortfall

If, after identifying how much you’re likely to need in retirement, you find you have a savings shortfall, there are practical ways to bolster your fund – read on to discover three.

1. Consider increasing your private pension contributions

Since your pension will likely form the majority of your retirement income, it’s vital to maintain monthly contributions.

If possible, you may even want to increase your contributions, as this is one of the simplest ways to bridge a retirement shortfall.

As of 2025/26, the Annual Allowance allows you to contribute up to £60,000 to your pension tax-efficiently, or 100% of your earnings, whichever is lower. This includes personal and employer contributions, as well as tax relief.

The more you contribute, the more you could benefit from tax relief, which is when the government essentially “tops up” your pension.

This means that a £100 contribution would effectively “cost”:

• £80 for basic-rate taxpayers

• £60 for higher-rate taxpayers

• £55 for additional-rate taxpayers.

Better yet, the more you contribute now, the more your fund will benefit from compounding returns over time, which is essentially “growth on growth”.

2. Boost your workplace pension contributions

You likely already have a workplace pension, as your employer is required to sign you up for a scheme automatically. This initiative is known as “auto-enrolment”.

As of 2025/26, auto-enrolment rules state that both you and your employer must contribute to a workplace pension, with minimum contribution thresholds at:

• 5% from yourself (4% from your salary and 1% from tax relief)

• 3% from your employer.

Yet, these thresholds aren’t static. You could increase the amount of your salary that you contribute to your workplace pension, boosting the overall value of your retirement wealth.

Your employer might even agree to match contributions, further bridging the shortfall.

Just remember that this will depend on your employer, and you must agree on this with them ahead of time. Still, it could mean that you’re more likely to be able to fund your desired lifestyle in retirement.

It’s crucial to ensure that you keep track of any old workplace pensions, too.

AJ Bell reveals that there are roughly 3.3 million unclaimed pension pots across the UK, with an average value of £9,470.

Read more: How tracking down forgotten pension pots could give your fund a considerable boost

While this may not seem like much, it could provide your fund with the boost needed to close any shortfalls.

3. Seek financial advice

Retirement is such an important milestone in your life, but planning for it often involves many complex decisions.

Despite this, a survey reported by FTAdviser reveals that 58% of respondents accessed their pension without seeking any formal advice. Around 1 in 7 later regretted doing so due to overspending and fears of running out of money.

Working with a financial planner could provide the clarity and confidence you need to prepare for the next phase of your life.

We could calculate how much you’ll realistically need, identify any shortfalls well ahead of time, and build a strategy to help you reach your goals.

If you’d like to discuss further how we can help you, email info@athertonyork.co.uk or call us on 0208 882 2979.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Workplace pensions are regulated by The Pension Regulator.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

The Financial Conduct Authority does not regulate tax planning.