What Size Pension Pot Do I Need To Retire? Know Now!

Question - What Size Pension Pot Do I Need To Retire?

Knowing how much money you need to save into your pension pot to retire can be difficult. With the vast majority of people now on a defined contribution pension, it is now in your hands to balance the risk and reward of saving up for retirement.

As a general rule, you need 20 to 25 times your annual expenses that you’ll require during retirement, so if you spend £20,000 per year, you’ll need a pension pot size of around £400,000 to £500,000.

If this sounds like a lot of money, or this doesn’t sound enough, that’s totally understandable. How much money you need in retirement is based on your personal circumstances. In this post, I’ll run through a variety of methods that you can use to calculate how much money you need and highlight ways to help increase the value and make it go further.

How Much Do I Need To Retire? Focus on Spending

When trying to calculate how much money you need in your pension pot, the most important figure to work out is how much your annual expenses will be during retirement.

This annual expenses figure will significantly impact the amount you need to save for retirement. As highlighted above, the general rule is that you need to save 20 to 25 times your annual expenses, so every £1,000 in expenses will equate to potentially needing an extra £25,0000 in your pension pot.

Some people fall into the trap of significantly overestimating this figure by using their current annual expenses when they’re working. This may include things that aren’t going to be there when you retire, such as commuting costs, regular car servicing, or even a mortgage payment if you can fully pay this off before you retire.

Overestimating your annual expenses isn’t the worst thing as will help give you a buffer in case there are any nasty surprises, such as unexpected home repairs, medical expenses or even needing to support a family member in need. However, this may delay the date of your retirement, so instead of enjoying your well deserved free time, you’re working instead.

What Is A Good Pension Income?

A good pension income is quite subjective. What is good for one person may not be good for another person, it all comes down to spending habits and the money needed to support the lifestyle you want to lead.

It’s critical to understand how much money you’ll need each year, including additional money you may spend on new hobbies, additional travel or unexpected events.

Retirement Budget

Below I’ll try and run through what could be in a typical retirement budget to give you some ideas.

I’ll make the assumption that the person owns their house outright. This means the budget won’t include rent which could be £500 to £1,000 a month or more by itself, which will obviously have quite a significant impact. However, this could have allowed the person to save up more during their working career, through investing the capital or being more mobile to find jobs etc.

Also, the assumption that this person lives on their own, so living as a couple would help reduce some of these expenses if they were shared.

Retirement Spend CategoryMonthlyAnnual
Food – Shop Bought£200£2,400
Food – Restaurants & bars£250£3,000
Car – insurance, maintenance, fuel & depreciation£250£3,000
House – energy, council tax & insurance£250£3,000
House – maintenance£75£900
Subscriptions – TV, phone, internet, music, gym£100£1,200
Holiday – staycations, abroad, hobbies£250£3,000
Gifts – children, grandchildren, friends£125£1,500
Total Expenses£1,500£18,000
Contingency / Margin of Safety – 10%£150£1,800
Total Budget£1,650£19,800

This is by no means an extensive list and is just to help you get an idea of some general expense categories. You may have different needs, wants and goals for your retirement, although the better you can predict what your spending habits may be, the more effectively you can understand the pension pot size and retirement income you’ll need.

I’ve also added in a margin of safety. I think this is useful to make sure you’re not completely maxed out and have some room for unexpected expenses or if you made any incorrect assumptions.

What Size Pension Pot Do I Need To Retire At 55?

With the average life expectancy being 81 in the UK, retiring at 55 would mean your retirement would be 26 years long. When calculating how much you need in your pension pot, make sure that you consider these additional years.

Also if you are one of the fortunate few who does make it past the average age, you don’t want to have to spend it eating rice and beans, whilst not being able to turn the heating on.

If you are aiming to retire at 55, it may be wise to aim for 30 times your annual budget to make sure you won’t run out of money and can live comfortably throughout your retirement.

What Size Pension Pot Do I Need To Retire At 60?

Retiring at 60 may be the more relevant figure for the majority of people as although the current normal minimum pension age (NMPA) is 55, this is increasing to 57 in 2028.

Similar to retiring at 55, retiring at 60 will mean you will on average have a retirement 21 years long. Also with the pace of new medical enhancements, the average life expectancy will most likely increase as well, adding additional strain to your budget if you need it to stretch across more years.

Due to having to account for these additional years, it may be best to look to save at least 25 times your annual budget.

State Pension – Helpful Addition

Under the new full state pension, you’ll get £179.60 per week which is expected to rise in line with inflation each year. The actual amount depends on your national insurance record and a few other factors. If you want to calculate or forecast your expected state pension, the GOV.UK site can help.

For a lot of people, especially those closer to retirement, this additional over £9,000 annually you can expect to receive on top of any private pension income will help cover a significant portion of an average retirement budget. This is especially true if two people get the full state pension in one household, reducing the need to have such a large private pension pot.

However, in my opinion, with the ever ballooning government debt and the deficit widening every year, I don’t think we’re far away from significantly reducing the state pension, pushing it out to late 70s or even scrapping it completely. This seems ever more likely now the government is heavily encouraging private pension contributions through forced employer matching and generous tax incentives.

This would be quite a radical change, especially considering how much national insurance is taken from employee wages. However, for people under the age of 40, I definitely wouldn’t rely on receiving this income in the future and make sure you prepare alternative plans. Then there’s only upside and you’ll get a nice bonus each year if it remains in place, although you might not get anything until you’re 80!

Average Pension Pot Size in the UK

Currently, in the UK the average pension pot size is £82,000. This is quite a lot lower than the figures I’ve been highlighting throughout this post and shouldn’t be used as a benchmark.

People at or below this average pension size will most likely have a heavy reliance on the state pension, which is fine as it is effectively guaranteed if you’re close to retiring now. However, for those people that are a few decades away from retirement, there’s definitely a risk something could change. This could potentially take your retirement decision out of your hands and force you to keep working additional years.

Tax On Pension Withdrawal

Tax is a hidden expense that needs to be factored into your calculations, especially for those with higher sums of money.

When withdrawing the money from your pension, 25% of it is tax-free and can either be taken as a one-off lump sum or through smaller cash sums. The rest is then taxed as income at the current tax rates.

You won’t pay any tax if your total annual income is less than the personal allowance. However, remember that you need to add together all sources of income into this tax calculation, such as income from the state pension and other types of income such as rent or interest.

How Much Should I Put In My Pension Each Month?

First of all, make sure you take advantage of any matched pension contributions that your employer offers. Now all employers in the UK must offer a workplace pension scheme by law and contribute a minimum of 3%.

Obviously the more you put into your pension the better, especially if you can make use of tax relief. However, make sure to strike a balance so you don’t sacrifice too much today for a better future, but also aren’t left with a minimal amount in retirement and end up regretting not saving more.

The little and often approach to saving, whether inside a pension or not, can add up to a significant sum of money when done over a long period of time. This is increased further when investment gains are added to the equation.

Can I Withdraw My Pension Before 55? Early Retirement

Yes, you can access the money in your pension before 55, however, it is not recommended as you will incur very large fees as this is actively discouraged by the government.

If you are considering or yearning for early retirement, you should consider other savings avenues where you can access the money to cover the period between your chosen retirement date and the time you can access your pension pot.

ISAs can be an excellent tool to help with this. ISAs allow you to save up to £20,000 per year with any gains being tax-free which can help save you quite a chunk of money on tax

However you decide to save this money, as long as it is outside a pension so you have access to it, the same logic will apply about knowing how much you will need each year.

Maximum Pension Pot Size & Contribution

The current annual pension contribution limit is 100% of your annual income, with a cap of £40,000. You can carry forward up to 3 years of previous personal allowances, although it may be worth seeking the help of a professional if you want to do this.

The current lifetime pension allowance is £1,073,100 which is the maximum amount you can have in your pension without incurring additional tax changes.


Overall, how much you need to save for retirement is very subjective and is heavily dependent on how much money you’ll need to spend to live the lifestyle you want to lead.

The earlier in your working life you can calculate this figure, the more time you’ll have to save. Whilst the numbers in this post do seem very large, now employers are forced to contribute to people’s pensions, I expect the average pension pot to start increasing quite dramatically.