How Much Income Will I Need in Retirement?

Don't start with your salary

This is one of the easiest mistakes to make.

Imagine you currently earn £60,000 a year. You might assume: "I need £60,000 a year to retire." But you are comparing two different numbers. Your salary is gross income. Your retirement requirement is really about spending.

While you are working, some of your salary may currently disappear into:

• Income Tax;
• National Insurance;
• pension contributions;
• mortgage repayments;
• commuting;
• work clothing;
• lunches;
• childcare;
• and other work-related costs.

Some of those expenses could disappear or reduce when you retire. So replacing your salary pound-for-pound may be completely unnecessary.

Steve's observation

People often tell me: "I'd like 80% of my salary in retirement." And I always want to know: why 80%? Did retirement suddenly cost exactly four-fifths of your working life? Probably not. It's just a rule somebody has heard somewhere.

I'd rather start with your bank statement. Because your bank statement knows far more about the retirement you'll need than a random percentage of your salary.

Start with what you spend now

One of the simplest ways to estimate retirement expenditure is to look at your existing household budget. Go through several months of bank and credit-card statements. Identify where your money actually goes.

Start with regular essentials:

• mortgage or rent;
• council tax;
• gas and electricity;
• water;
• food;
• insurance;
• broadband;
• mobile phones;
• car costs;
• transport;
• subscriptions;
• debt repayments.

Then look at lifestyle spending:

• holidays;
• eating out;
• hobbies;
• clothes;
• entertainment;
• family;
• gifts;
• weekends away;
• home improvements.

This gives you a genuine starting point rather than an invented retirement number.

What might disappear when I retire?

Some expenditure may reduce significantly. For example:

• commuting;
• parking;
• train fares;
• business clothing;
• lunches at work;
• professional subscriptions;
• pension contributions;
• mortgage repayments, if the mortgage is cleared;
• childcare, depending on age and circumstances.

But do not assume every cost falls. That is where retirement budgets can become misleading.

What might increase?

You are suddenly going to have something you may not have had enough of for years: time. And time has an annoying habit of costing money.

You may want:

• more holidays;
• more days out;
• more golf;
• more meals out;
• more weekends away;
• more hobbies;
• more time with grandchildren;
• more travel;
• more home projects.

Your electricity and heating costs might increase because you are home more often. You may replace cars during retirement. You may want to help children or grandchildren. And later in life, other costs can emerge.

So retirement does not necessarily mean spending less. It often means spending differently.

What do the Retirement Living Standards say?

The UK Retirement Living Standards provide a useful benchmark. For 2026, they estimate annual spending for a one-person household at approximately:

• Minimum — £13,900
• Moderate — £32,700
• Comfortable — £45,400

For a two-person household:

• Minimum — £22,500
• Moderate — £45,400
• Comfortable — £62,700

The Standards are designed to illustrate the sort of lifestyle different levels of spending may support. For example, the Moderate level includes more flexibility than the Minimum level, while the Comfortable level allows for greater spending on things such as holidays, eating out and leisure.

But there is a very important assumption: the headline figures do not include rent or mortgage costs. They assume you own your home. They are also expenditure figures rather than the gross pension income you necessarily need to receive. So use them as a reference point, not a personal retirement target.

Minimum doesn't mean miserable

It is worth understanding the terminology. A Minimum retirement standard is not intended to mean absolute poverty. It is designed around covering basic needs with some money available for leisure.

Likewise, Comfortable does not mean yachts, private jets and spending January in Monaco. These are lifestyle benchmarks. They are there to help make an abstract question — "How much money will I need?" — feel more tangible.

Don't forget housing

This can make a huge difference. Suppose two people both want the same lifestyle excluding housing. One owns their home outright. The other pays £1,200 a month in rent. That is an additional £14,400 a year before allowing for future rent increases.

Similarly, someone carrying a mortgage into retirement needs to include those repayments. That is why headline retirement-lifestyle figures can be dangerous if you do not understand what is included. Your housing plan is part of your retirement plan.

Think in monthly income as well as annual income

Annual numbers are useful for planning. But most of us experience life monthly. For example:

• £24,000 a year = £2,000 a month
• £30,000 a year = £2,500 a month
• £36,000 a year = £3,000 a month
• £48,000 a year = £4,000 a month

Thinking monthly can make the number much easier to relate to your current lifestyle. Ask: "If £3,000 arrived in my account every month, would that support the retirement we want?" That is often much easier to answer than staring at a six-figure pension pot.

Net income and gross income aren't the same thing

This is important. Suppose you decide you want £3,000 a month available to spend. That is £36,000 a year of net spending. But depending on where your retirement income comes from, you may need more than £36,000 of gross income to provide it.

Some pension income can be taxable. Different assets can be taxed differently. Tax allowances and personal circumstances can matter. So retirement planning should distinguish between what you want to spend and what income needs to be generated to provide it.

MoneyHelper also specifically notes that the income required may need to be higher than the Retirement Living Standards expenditure figures because tax may be deducted before pension income is received.

Retirement probably won't cost the same every year

This is another reason a single retirement-income number can be misleading. Many retirees experience different spending phases. You sometimes hear these described broadly as:

• Go-go years — you are newly retired, healthy and active. Travel, hobbies and experiences may be high.
• Slow-go years — you may still live comfortably but travel and activity levels reduce.
• No-go years — discretionary expenditure may fall, although healthcare, support or care-related expenditure can become more important.

Real life obviously does not follow those labels perfectly. But the underlying point is useful: your retirement spending can change over time.

Include one-off costs

Annual budgets are brilliant at hiding large irregular expenses. Your ordinary budget might say: Car — £250 per month. Then one year you replace it. Or: House maintenance — £100 per month. Then the roof needs replacing.

Think about:

• cars;
• boilers;
• roofs;
• kitchens;
• bathrooms;
• major holidays;
• weddings;
• helping family;
• private healthcare;
• unexpected repairs.

You do not necessarily need to allocate all of that spending to every year. But your retirement plan should have the capacity to deal with it.

What about holidays?

This sounds trivial. It is not. Ask someone what they want to do when they retire and one of the most common answers is: travel.

If travel matters to you, budget for it properly. Not: "We'll probably have a couple of holidays." Actually estimate them. Two £3,000 holidays are £6,000 a year. Over ten active retirement years, that is £60,000 before inflation. It is part of the lifestyle. Include it.

What about helping children and grandchildren?

Again, this is common. You may want to help with:

• house deposits;
• university;
• weddings;
• school fees;
• grandchildren;
• emergencies.

If helping family is genuinely important to you, recognise it in the plan. But there is a balance. You do not want to give away money today and then discover you have compromised your own financial security later. Your retirement has to work first.

Couples should build one household budget

If you are retiring as a couple, do not independently decide: "I need £30,000 and my partner needs £30,000, so we need £60,000." Many household costs are shared — housing, utilities, broadband, cars to some extent, food to some extent. That is one reason the Retirement Living Standards for two people are not simply double the single-person figures.

Start with the household. Then consider how income will arrive between you. But also test what happens to one person. A retirement plan may work beautifully for a couple. Then one partner dies. Some costs reduce. Others do not halve. The council tax does not halve. The heating bill does not halve. Home insurance does not halve. Yet household income can change. So after building the couple's retirement-income requirement, ask: "What income would the survivor need?" That is a separate and important calculation.

Inflation means today's number won't stay today's number

Suppose you decide: "£30,000 a year is plenty." That is £30,000 in today's spending terms. If retirement lasts decades, prices are likely to change. Your £30,000 target therefore needs to be considered alongside inflation. Some retirement income may increase. Some may not. Investment returns might help assets grow, but they are not guaranteed. So the objective is not necessarily £30,000 forever. It is maintaining the purchasing power and lifestyle you are trying to fund.

Don't forget the fun

Retirement planning can become depressingly efficient. Gas. Electricity. Food. Council tax. Insurance. Congratulations — you have successfully funded 30 years of existing. That is not necessarily what you are trying to achieve.

Include:

• holidays;
• hobbies;
• restaurants;
• grandchildren;
• days out;
• experiences;
• whatever retirement means to you.

Those are not frivolous extras. They are often the whole reason someone wants to retire.

Steve's observation

Nobody spends 40 years dreaming of retirement because they are excited about having enough money for the gas bill.

We save for retirement because we want time. Time with family. Time travelling. Time doing whatever we have spent years saying: "I'll do that when I retire." So put those things in the budget. Otherwise we have designed a retirement spreadsheet rather than a retirement.

How much of my current income should I replace?

You will often see percentage-based rules online — perhaps 60%, 70%, two-thirds, 80%. They can provide a rough starting point. But they do not know whether you have a mortgage, whether you are a high saver, whether you have expensive hobbies, whether you want to travel, whether you are supporting family, or what your lifestyle costs. Your actual expenditure is considerably more useful. Use percentages as a sense check, not as the plan.

So what's my retirement-income number?

Start here. Take your current annual spending. Then:

• Remove costs likely to disappear — commuting, pension contributions, mortgage if definitely repaid, work costs.
• Adjust costs likely to change — food, transport, utilities, clothing.
• Add retirement lifestyle — holidays, hobbies, entertainment, days out, family.
• Add irregular expenditure — cars, home repairs, major purchases.
• Add housing if necessary — rent or mortgage.
• Allow for tax — your spending requirement and gross income requirement may differ.
• Consider inflation — today's budget must remain meaningful in future years.

Now you have something much more useful than: "I think £30,000 sounds about right."

What should I do next?

Download your last three to six months of bank statements. Do not look at your pension yet. Work out: what does our life actually cost? Then separate it into essentials, lifestyle and one-off spending.

After that ask: what disappears when I retire? What stays? What increases? That is your first genuine retirement-income target.

Before we ask how much income your pensions can provide, we need to know what income you actually need. Otherwise we are doing the calculation backwards. Your salary is not your retirement target. Neither is somebody else's pension income. And neither is an arbitrary percentage from the internet. Your target comes from the life you are trying to build.

So do not start with: "How much income can I get?" Start with: "How much income would allow me to live the retirement I actually want?" Once we know that, everything else becomes much easier to plan.

Build a realistic retirement budget using your actual household spending rather than an arbitrary income target. If you are approaching retirement, compare that spending requirement with your pensions, State Pension, savings and other expected income. If the position is complicated or you are making significant retirement decisions, regulated financial advice can help model different scenarios and explain the risks and trade-offs.