How much money will you need in retirement?
A common starting question is simple to ask but harder to answer: how much is enough?
The amount you need in retirement depends on several factors:
- The lifestyle you want to maintain
- How long your retirement may last
- Whether you plan to support family or leave a legacy
- How much certainty you want over income
Industry bodies such as the Pensions and Lifetime Savings Association publish retirement living standards that describe what a minimum, moderate or comfortable lifestyle might look like in practice, alongside estimated levels of after‑tax income needed for each these lifestyles. These benchmarks are updated regularly to reflect inflation and changing spending patterns. They can be useful reference points – but they aren’t personal plans.
Your own spending may look very different. Travel, hobbies, helping children or grandchildren, maintaining multiple properties or charitable giving can all shape your retirement budget. Spending also tends to change over time, with higher activity earlier in retirement and lower discretionary spending – spending on things you can live without but you get a lot of pleasure from – later on.
Cashflow planning – the closest you’ll get to having a crystal ball for your money
A cashflow plan can bring this to life. By mapping income, expenditure and assets year by year, it shows how different decisions – retiring earlier, drawing more or less income, changing investment risk – could affect your long‑term position. Importantly, it helps turn uncertainty into informed choice.
For example, if you dream of going on a year-long, round-the-world trip as soon as you retire, cashflow planning can forecast your income and expenditure during your trip and beyond.
It helps you understand what’s achievable, where any pressure points may lie, and how to adjust your plans as circumstances change. Cashflow models are helpful planning tools, but they rely on assumptions about the future and are not guaranteed.
How much is enough?
‘Enough’ is subjective. If you haven't outlined your limits, the financial goalposts will keep moving. Knowing your ‘enough’ in terms of your finances can be game-changing for your retirement planning.
An interesting anecdote about this involves Joseph Heller, author of the wildly popular novel Catch-22, who once attended a party with his good friend Kurt Vonnegut. On finding out that their host had made more money in one day than Heller had earned from his book, he responded with “Yes, but I have something he will never have... Enough.”
Some people will feel like they need quite a lot of money to feel like they have enough, because they have big plans for their retirement or their family. Other people might feel that they need less.
In his book, ‘The Psychology of Money’, Morgan Housel suggests that this is one of the most important financial skills you can learn. Once you have a number that you’re comfortable with, you can work towards it, with the support of your financial adviser.
To figure out how much is enough, ask yourself some of the following questions. You might find it helpful to work through them and work out the costs with a financial planner:
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What would a good day or week in retirement look like?
“I’d like to spend a week every month staying in historical pubs and visiting country houses.”
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What matters most to you – travel, hobbies, time with family, or freedom?
“I love my hobbies, but time with my loved ones is equally important to me. I can’t wait to build a pottery studio at home and start throwing some pots for my loved ones!”
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Which costs feel essential, and which are optional?
“The weekly shop and utility bills are non-negotiable. But I love splurging on new toys and treats for Minnie, our Maltipoo.”
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Are you more worried about running out of money or not enjoying it?
“I want to find a balance between knowing my future is financially secure while squeezing as much joy out of life as I can.”
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How important is a reliable, predictable income?
“Knowing how much I have coming in each month feels reassuring – I can sleep soundly at night.”
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Have you thought about planning for a long retirement or future care costs?
“It can be challenging to plan around uncertainty, but I’m doing my best. Care costs can be astronomical, so I want to be ready.”
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Do you want to support family or leave an inheritance?
“I want to leave £50,000 for each of my four grandchildren to build a nest egg for their first home, when they’re grown up.”
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Would you prefer to spend more now or preserve wealth for later?
“Some things are easier to do now – I want to walk the Cotswold Way!”
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At what point would having more money stop improving your life?
“If all my needs and wants are met and I have a good buffer for emergencies, then I’m good.”
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What would you not be willing to give up for a higher retirement income?
“My family and friends are important to me, so I wouldn’t want to give up spending quality time with them for more money in retirement. I want to take my entire family out to eat at Pizza Express every month.”
Why financial advice can make a difference
Retirement planning involves more than selecting investments, calculating tax allowances, or understanding the effects of inflation. It requires making long‑term decisions in the face of uncertainty – something people are not naturally wired to do.
Research from the International Longevity Centre has consistently shown that individuals who receive regulated financial advice tend, on average, to:
- Accumulate more wealth over time
- Make fewer reactive decisions during periods of market volatility
- Feel more confident about their financial future
The value of advice lies not only in technical expertise, but also in structure and discipline. A clear plan can help avoid common pitfalls such as withdrawing too much too soon, holding excessive cash for long periods, or taking inappropriate investment risk.
An adviser can help combine financial planning, investment management and – where appropriate – specialist advice on tax-efficiency and estate planning. The focus is on creating a joined‑up strategy that evolves with you, rather than a series of disconnected decisions.
What's changed in pension rules?
Pension rules have evolved significantly in recent years, adding both opportunity and complexity.
For many years, the Lifetime Allowance (LTA) limited the amount that could be built up in pensions without additional tax charges. From April 2024, the LTA was abolished and replaced with new limits on the amount that can be taken as tax‑free cash and on certain lump sum death benefits.
The lump sum allowance (LSA) normally lets you take up to 25% of your pension as tax‑free cash, capped at £268,275. Some people may be entitled to more if they hold valid historic or scheme‑specific protections. You can usually access a private pension from age 55, rising to 57 from April 2028.
These changes are particularly relevant if you have a larger pension pot or are considering substantial withdrawals. Decisions around timing, structure and beneficiaries may now require a different approach than in the past.
Other pension rules also continue to influence planning, including:
The annual allowance and tapered annual allowance for higher earners
The Money Purchase Annual Allowance, which can restrict future contributions after flexible income withdrawals
State pension eligibility and deferral options
Because pension policy is shaped by government decisions and can change over time, it’s important to review plans regularly rather than relying on outdated assumptions. Reviewing your retirement plan regularly with your financial adviser can help ensure it remains appropriate for you and your goals.
Pensions and inheritance tax – how do they fit together?
Pensions often play a distinctive role in estate planning.
Under current rules, pension assets are usually treated differently from other investments on death and may, in many cases, sit outside the estate for inheritance tax purposes. This can make pensions an efficient vehicle for passing on wealth, particularly when beneficiaries are nominated appropriately.
However, from 6 April 2027, unused pension funds will be included in estates and liable for inheritance tax. This means you may need to plan differently if you want to pass your wealth on in the future. You can read more about the implications of this on your retirement planning in our article.
A robust retirement plan considers pensions alongside other assets such as ISAs, property, and general investments. It also looks at your wider family picture – including potential lifetime gifts, trust planning, and the needs of surviving spouses or partners.
Pension or ISA – which should you prioritise?
This is one of the most common retirement planning questions, and the answer is rarely either‑or.
Pensions typically offer:
- Tax relief on contributions
- Tax‑efficient growth
- Taxable income on withdrawal, with a portion usually available tax‑free within limits
ISAs offer:
- No tax relief on contributions
- Tax‑free growth and withdrawals
- Flexibility and accessibility at any age
For many higher‑rate and additional‑rate taxpayers, pension contributions remain a powerful long‑term planning tool because of the upfront tax relief available. ISAs can then complement pensions, before or after retirement, by providing accessible, tax‑efficient capital to manage income tax bands or fund irregular spending.
The right balance depends on your income, time horizon, liquidity needs, and overall objectives. Coordinating pensions and ISAs within a single plan can improve flexibility and resilience over time.
Is it ever too late to improve your retirement position?
It’s rarely too late to make a meaningful difference.
Depending on your circumstances, options may include:
- Working for longer or phasing in retirement
- Increasing contributions where allowances permit
- Reviewing investment strategy to ensure it remains appropriate
- Deferring pension withdrawals or the state pension
- Using surplus income to make gifts in a planned and sustainable way
Small changes, made early enough, can compound positively. Even later in life, clarity around spending, tax, and investment can improve confidence and control.
Planning with confidence
Retirement planning today is about choice, flexibility, and sustainability. A clear, well‑structured plan can help you make the most of the opportunities available, while managing uncertainty along the way.
By focusing on long‑term outcomes rather than short‑term noise, and by reviewing your plans as life evolves, it’s possible for you to approach retirement with confidence – and shape a future that reflects what matters most to you.
Your Rathbones adviser can help you put together all the different pieces of your retirement puzzle. Reach out to your usual contact or fill out our enquiry form below. We’re here to help.
