How much do you need to retire? What different pension pots could pay

Working out how much you need to retire is crucial to your plans for later life. This guide will tell you how to work out what you need, what different pots might pay, and ways to ensure you don’t burn through your pension pot too quickly.

How much do you need to live on in retirement?

The amount you need to live on in retirement depends on your lifestyle. However, you can build a retirement budget, to get a fairly accurate picture of how much you will need to spend each month. Look at your current spending, and think about what your circumstances will be in retirement. 

Try to cover all types of costs. Think about categories like:

• Essential costs: Housing, bills, food, transport, and basic leisure.
• Luxuries: Holidays, hobbies, gifts, and home renovations.
• Irregular costs: New cars, home repairs, and care costs.

With this, you can build a picture of your monthly and annual spending, and an idea of the kind of financial buffers you might need for surprise costs. 

How much will you need to retire?

With oversight of your outgoings, it’s time to consider what’s coming in. Before looking at your pension pot, think about other capital and income sources you may have in retirement. 

These include:

• Defined benefit (DB) pensions: These “gold-plated” pensions are quite different from most pension pots. They provide a guaranteed income for life. 
• Savings: Savings and investment accounts, like Stocks and Shares ISAs or Lifetime ISAs, might provide additional capital.
• Part-time work: You might work reduced hours in retirement. This can top up your income and ease you into a change in lifestyle.
• Rental properties: These can provide passive income.
• State pension: You start receiving your state pension between 66 and 68. Check your state pension age.

You may also end up downsizing to reduce your housing costs or to free up capital. 

Use regular and guaranteed income sources from this list, such as your state pension, and any DB pensions or rental income, to determine your regular income. 

Any shortfall between this number and the amount you need to live on in retirement will need to covered by your pension pot. 

What is the 4% rule?

The 4% rule is a common method of ensuring you do not withdraw too much from your pension pot. 

It suggests that pension pot withdrawals in your first year of retirement should not exceed 4% of the total pot. Following years should be capped at the same amount, but adjusted for inflation. This method is intended to allow for a 30-year retirement. 

However, it is worth noting that the 4% rule is an American invention, and some sources suggest retirees in the UK should use a 3.1% safe withdrawal rate (SWR) instead.

Find out if the remaining annual expenditure you need to fund with your pension pot would be safe to withdraw using the 4% rule or the more conservative 3.1% rule. 

For example, if you have a pot of £600,000 and want to use a withdrawal rate of 3.1%, you would be able to withdraw an income of £18,600 before tax and fees. 

How much do you need to retire early?

The aforementioned 4% rule needs to be adapted if you want to retire early. This is because is aims to cover a 30-year retirement.

If you retire early, you might be hoping for significantly more than that.

For example, if you are aiming to retire between 55 and 60, its more sensible to budget for a 35-year retirement. In this scenario, lowering your SWR to 2.9% 

What would different pension pots pay?

Using the more cautious 3.1% rule as a baseline, we can quickly establish the initial annual income pension pots might be able to pay across different periods of retirement. Take a look at the table below for some examples.

How to increase your pension pot

If you need to grow your pension before retirement, there are some steps you can take:

• Work out if your pension is underperforming.
• Consolidate old pensions and track down lost pots.
• Open a SIPP, and seize control of how your pension is invested.

Freetrade’s SIPP is free to open, has no monthly fees and offers access to more than 7,000 stocks, ETFs, mutual funds, and other investments. You could open a Freetrade SIPP today.

How much do you need to retire - FAQs

How much do you need to retire comfortably in the UK?

According to the Retirement Living Standards, a year of comfortable retirement in 2025/26 would cost £43,900 for one person, or £60,600 for a couple.

Can you retire at 60 with 250k in the UK?

Using a 4% SWR, you could withdraw initial income of £10,000 from a £250,000 pot. With a 3.1% SWR, this would drop to £7,750. Depending on your circumstances, including other forms of income, this could be enough to retire.

Can you retire at 60 with 500k in the UK?

Using a 4% SWR, you could withdraw initial income of £20,000 from a £500,000 pot. With a 3.1% SWR, this would drop to £15,500. This may be enough for you to retire, though it depends on your personal circumstances.

Can you retire at 55 with 300k in the UK?

With a 3.5% SWR, you would be able to withdraw an initial income of £11,500 from a £300,000 pot. With a 2.9% SWR, this would drop to £8,700. Depending on your circumstances and other income sources, this might be enough for you to retire.

What are the biggest mistakes to avoid when retiring?

Watch out for underbudgeting and overspending early in retirement, as this is a particularly common issue. Remember to plan your budget carefully and stick to it. If you do find yourself overspending, work to fix the situation rather than ignoring it and digging yourself into a deeper hole.