The Pensions and Lifetime Savings Association (PLSA) publishes annual Retirement Living Standards that describe what different income levels actually buy in retirement for a single person in the UK.
These figures are gross income targets (before tax). Because retirees do not pay National Insurance and only income above £12,570 is taxed, the net income is close to the gross at lower levels. The pot targets above are calculated using the 4% rule after offsetting the full State Pension (£11,502).
The 4% rule originated from US research (the Trinity Study) but is widely used in UK retirement planning. It states that if you withdraw 4% of your portfolio in the first year and adjust for inflation annually, your money is highly likely to last 30 years.
The shortcut is the 25× rule: multiply your required annual income by 25 to find the pot you need. A £20,000/year income requirement needs a pot of £500,000.
| Annual income needed | Pot required (4% rule) | Pot required (3.5% rule) |
|---|---|---|
| £10,000 | £250,000 | £285,700 |
| £15,000 | £375,000 | £428,600 |
| £20,000 | £500,000 | £571,400 |
| £30,000 | £750,000 | £857,100 |
| £40,000 | £1,000,000 | £1,142,900 |
The full new State Pension (£11,502/year) is a guaranteed, inflation-linked income stream. It fundamentally reduces how much private pension you need — because you do not need to replicate it from your own savings.
To generate £11,502/year from a private pot at a 4% withdrawal rate, you would need £287,550. By ensuring you qualify for the full State Pension (35 NI years), you effectively receive a pot equivalent of nearly £290,000 at no cost beyond your NI contributions during working life.
These figures assume the full State Pension (£11,502/year) is received from age 67. The private pot needed covers only the shortfall between the State Pension and your income target.
| Retirement income goal | State pension covers | Private pension gap | Private pot needed (4%) |
|---|---|---|---|
| £14,400 (minimum) | £11,502 (80%) | £2,898 | £72,450 |
| £20,000 | £11,502 (58%) | £8,498 | £212,450 |
| £25,000 | £11,502 (46%) | £13,498 | £337,450 |
| £31,300 (moderate) | £11,502 (37%) | £19,798 | £494,950 |
| £43,100 (comfortable) | £11,502 (27%) | £31,598 | £789,950 |
Sarah wants £31,300/year in retirement at 67. She will receive the full State Pension (£11,502). She needs a private pension generating £19,798/year. At a 4% withdrawal rate, that requires a private pot of £494,950. At 55, Sarah has £180,000 saved. She needs to accumulate a further £315,000 in 12 years. At 7% real growth, monthly contributions of approximately £1,400 would close the gap. Alternatively, salary sacrifice contributions would benefit from 40% tax relief if she is a higher-rate taxpayer.
James wants £35,000/year from age 60 and cannot claim State Pension until 67. He needs £35,000/year for 7 years from his own savings (£245,000 in ISA/bridge fund), then the State Pension reduces his private pension requirement to £23,498/year. At a 3.5% withdrawal rate (longer drawdown at 60), his pension pot needs to be £671,370. His ISA bridge of £245,000 is separate. Total retirement wealth target: approximately £916,000. Monthly contributions from age 40 (at 7% real growth): roughly £2,200.
Once you reach retirement, you choose how to take your pension income. The two main options are:
Your pension pot stays invested and you draw income from it. Flexible, can leave money to beneficiaries, but investment risk remains with you. The 4% rule is designed for drawdown users.
You exchange your pot (or part of it) for a guaranteed income for life. Rates have improved significantly since 2022 as interest rates rose. A £100,000 pot in 2026 can typically buy around £6,000–£7,000/year of guaranteed income for life (depending on your age and health). Annuities protect against longevity risk — running out of money by living longer than expected.
| Drawdown | Annuity | |
|---|---|---|
| Investment risk | You bear it | Insurer bears it |
| Flexibility | High | Low (most annuities are fixed) |
| Death benefits | Remaining pot passes on | Typically ends at death (or spouse) |
| Longevity protection | None — pot can run out | Guaranteed for life |
| Best for | Healthy investors comfortable with risk | Those who value certainty |
Many retirees combine both: annuitise enough to cover essential spending (with State Pension), and use drawdown for discretionary spending. This is sometimes called the flooring approach.
If you want to retire before State Pension age (currently 66, rising to 67), you face two challenges: (1) pensions cannot be accessed before age 57 (rising from 55 to 57 in April 2028), and (2) no State Pension until 66–67.
The FIRE (Financial Independence, Retire Early) movement addresses this via a two-pot strategy: