Nobody wants to think about this. I get it. Retirement feels abstract until it doesn’t, and by the time it stops feeling abstract you’ve potentially lost a decade of compounding that you can’t get back. So let’s just get into it.
The honest answer to how much you need is: more than most people are saving, but probably less than the number that’s making you anxious at 2am. And crucially it’s actually possible to work it out properly rather than just hoping for the best.
What Does a Comfortable Retirement Actually Cost?
There’s an organisation called the Pensions and Lifetime Savings Association that does proper research into this every year. Their 2024 figures break retirement down into three tiers, and they’re worth knowing because they give you something real to aim at rather than a number you’ve plucked from thin air.
A minimum retirement covers basic needs and not much else. For a single person that’s around £14,400 a year. A couple needs about £22,400. You’re keeping the lights on but you’re not booking holidays.
Moderate is the middle ground. A bit of travel, a car, the odd meal out. Single person: £23,300. Couple: £34,000. Most people would be reasonably content here if they owned their home outright.
Comfortable is where you’re genuinely not thinking about money. Regular holidays, helping the kids out, replacing things without agonising over it. Single: £43,100. Couple: £59,000.
That top figure, £43,100 for one person, is more than the UK median salary. That’s not me trying to scare you, that’s just what comfortable retirement actually costs. It doesn’t happen on the default auto enrolment contribution. Not even close.
Your number depends on your life. Still renting in retirement? You need more. Mortgage paid off, happy pottering around locally? You need less. A good starting point is looking at what you spend now, stripping out the stuff that disappears when you stop working commuting, pension contributions, work lunches, possibly a mortgage and adding back what goes up, like heating and healthcare. Most people land around 70% of their current income, give or take.
The 4% Rule
Right, so once you’ve got a rough annual income figure, here’s how you turn it into a savings target.
The 4% rule says: if you withdraw 4% of your pot in year one, then adjust that amount for inflation each year, you’ve got a very high chance of not running out of money for 30 years. It came out of academic research in the 1990s and it’s been stress-tested pretty thoroughly since. Not a guarantee, markets do weird things, but it’s a solid working assumption.
Run the numbers backwards and it looks like this:
Need £20,000 a year from savings, target a pot of £500,000.
Need £30,000, target £750,000.
Need £40,000, target £1 million.
Need £50,000, target £1.25 million.
Before you have a crisis, those are the figures your savings need to cover. Not your total income. The State Pension covers a chunk of it, which takes some of the pressure off.
The State Pension
The full new State Pension right now is £221.20 a week, so roughly £11,500 a year. You get it at 67 for most people currently working, and you need 35 years of National Insurance contributions to receive the full amount. Less than 10 years of NI and you get nothing at all.
Eleven and a half thousand a year isn’t going to fund winters in Spain. But for a couple where both partners get the full amount, that’s £23,000 a year before they’ve touched a penny of savings. Against the PLSA’s moderate retirement figure of £34,000 for a couple, you’re only £11,000 short from your savings. That’s a very different target to find than £34,000.
Genuinely, go and check your State Pension forecast if you haven’t. Gov.uk, search “Check your State Pension forecast”, five minutes. A lot of people are further along than they think. You can also see if it’s worth buying back missing NI years, and for some people that’s one of the best financial moves available. You’re essentially buying guaranteed government income for a one off payment. Worth looking at.
Inflation Will Quietly Wreck You If You Ignore It
This is the bit that catches people out. Even a fairly modest 2.5% annual inflation rate means money loses about a third of its purchasing power over 20 years. The £30,000 a year that feels comfortable when you retire at 65 will feel more like £18,000 by the time you’re 85. Same number, very different life.
The answer isn’t to panic, it’s to make sure your money doesn’t just sit in cash. A retirement pot parked entirely in a savings account will be slowly eaten alive by inflation. One that stays at least partially invested in a diversified mix of assets has a fighting chance of keeping pace. This is why drawdown strategies where you keep investing through retirement exist. You’re not just spending down a fixed pot, you’re trying to keep it growing while you withdraw from it.
Most decent retirement calculators build in a 2-3% inflation assumption. If yours doesn’t, find a different calculator.
What’s Actually Doing The Work
Your workplace pension is the engine. If you’re employed and over 22, you’re being auto-enrolled. Your employer puts in a minimum of 3%, you put in 5%, totalling 8% of qualifying earnings. That’s fine as a starting point. It’s not fine as a finishing point. 8% over a full career generally produces a moderate retirement if you’re lucky, not a comfortable one. If you can afford to increase your contributions even by a percent or two it makes a bigger difference than most people expect, especially if you’re younger and the compounding has decades to work.
Defined benefit pensions are worth their weight in gold and are basically extinct in the private sector now. If you’ve got one from an old job, don’t cash it in without getting proper advice first. Seriously.
A Stocks and Shares ISA runs alongside your pension and fills in the gaps. You can put in up to £20,000 a year, it grows tax-free, and you can take money out whenever you want with no tax to pay. The flexibility is the bit that makes it valuable. Your pension is locked until 57, your ISA isn’t. A pot of £200,000 in an ISA throwing off 4% a year is £8,000 tax-free annually. That matters.
Cash savings, Premium Bonds, easy access accounts, are useful for your short-term buffer and for money you know you’ll need in the next few years. Not for long-term retirement wealth. Inflation will eat it.
So What Do You Actually Do
Check your State Pension forecast. Now, before you forget. Gov.uk, five minutes.
Log into your pension provider and find the projection screen. It’ll show you what your pot is expected to be worth at retirement based on current contributions. That number will either reassure you or motivate you. Either way you need to know it.
Work out the gap. Take your target income, subtract your projected State Pension, subtract what your pension is forecast to pay, and what’s left is what you’re trying to close with ISA contributions or increased pension payments.
Put the contributions on automatic. The single biggest enemy of retirement savings is forgetting to increase them when you can afford to. Set up automatic escalation if your provider offers it, or set a calendar reminder to review contributions every year.
And if you’re getting into the more complicated stuff, how to take money out tax-efficiently, whether to take your pension as drawdown or an annuity, how inheritance interacts with pensions, that’s genuinely worth paying an independent financial adviser for. The basics above you can handle yourself. The optimisation is where advice pays for itself.
Iceburg Wealth does not provide regulated financial advice. Everything here is based on personal experience and research. Always do your own due diligence before making any financial decisions.