How much should an average retirement income be?

How much do you need to retire? The average retirement income may be more than you think, especially if you want to live comfortably.

The gap between the amount of money people think they need and what they actually require for a happy retirement is not a trifling figure. Yet, according to our study “What’s Your Number”, just 12% of under 55s have set a target for their pension pots—meaning around 18 million UK adults could potentially be heading for a retirement nightmare.

It’s time to ask yourself: Am I one of them?

In speaking to a representative example of UK adults about their top priorities for retirement, the two most popular responses were overwhelmingly ‘not having to worry about money’ and ‘maintaining my current standard of living’. These goals are fundamentally important to basic happiness, which makes it all the more puzzling that so many UK adults are alarmingly lax in their financial planning for retirement.

The difference between expectation and reality

When asked, the average retirement income people feel they need in order to attain their goals is £34,000 a year. But at today’s rates, you would need to have saved up an almost £1 million pension to be able to achieve that figure (assuming you plan to take an annuity at age 65, and an upfront 25% tax free lump sum).[1] And that doesn’t allow for leaving money to your spouse or civil partner should you die before them. In reality, the average UK adult has a target pension pot of £355,000, which equates to an estimated annual income of £13,000—some £20,000 below their desired income. Currently, the average net income of a retired person in the UK is only £15,080 per year[2].

So, how has this gulf between expectation and reality come to be? Our research found that people are simply not prioritising planning for retirement. Staggeringly, just 7% of UK adults know the age they at which they’d like to retire, and a mere 3% say their target retirement pot is among the most important numbers to know. In fact, more than 75% of UK adults lack a savings target.

Spending in retirement

In order to spend comfortably in retirement—that is, continue living the lifestyle you’re accustomed to today—you’ll need 20 to 25 times your expected expenses (inclusive of not only bills and financial obligations, but also money for say, entertainment and travel). Therefore, if you’re looking for an retirement income of £30,000 a year, you’ll need approximately £600,000-£750,000 in your pension pot.

Research from the Pensions and Lifetime Savings Association[3] has estimated that to live a moderate lifestyle in retirement, a single person in the UK would need an average retirement income of £20,200 by today’s standards. That jumps to £33,000 per annum if you’re looking for an especially comfortable retirement.

Retirement incomes are on the up

As illustrated by the chart below, the average retirement income in the UK has steadily increased over the past five years. But while this is an encouraging statistic, the economy needs to be kept in mind: rising inflation will send the cost of living climbing, too.

The repercussions of not planning for retirement

Like anything in life, burying your head in the sand won’t make the problem go away. And the potential challenges go beyond the threat of not having enough money to enjoy retirement—there’s the risk of not being able to retire at all.

When we asked people how confident they were about being able to retire when they want to, the findings were alarming. As you can see from the graph below, only a third of people aged between 45 and 54 are confident that they’ll achieve their ideal retirement date. It’s similarly bleak for those approaching pensioner age.


An average of 14% of UK adults are already planning to work beyond age 65, and this rises to one in five (21%) of under-35s. While working longer could be a good solution, predicting how you’ll feel in the future can also be a risky strategy. What if you suddenly find yourself in longer-term ill health? You might have grandchildren to care for, or hobbies you’d like to pursue. It’s always good to have the option to work longer, but when the time comes, you don’t want to find yourself forced into it.

So, what can people do to bridge the retirement savings gap?

Stop procrastinating

It doesn’t matter how old you are—now is the time to make a financial plan for retirement. The sooner you start, the easier it will be. If you’re upwards of 40 or even into your 50s, don’t think it’s a lost cause: rather, it’s even more critical to face up to the reality of what retirement will mean for you.

That being said, the best way to save for retirement is to get a handle on things early in adulthood. The average Brit looking to achieve that £1 million pension pot would need to start contributing £1,360 a month from age 20. Keep in mind this is inclusive of investments and employer pension contributions and won’t be entirely deducted from your take-home pay. The graph below illustrates the growth of your retirement savings over time (assuming a 2% inflation rate) if you start straightaway. The total at retirement—£902,000— would buy an annuity providing a £225,500 tax-free cash pot and a £34,000-per-annum guaranteed income.


Delaying saving until age 40 will be a fair bit more expensive: the contributions you’d need to make to achieve a pension pot of around £1 million doubles to £2,700 if you miss out on those decades of building your wealth. But doing so will allow for a comfortable average retirement income to a very advanced age.


Waiting another five years (to 45) ups the necessary monthly contributions to £3,455 a month.

Know your starting point

Take a close look at your savings and investments. It often makes sense to consolidate your pensions at this point, assuming you don’t lose any valuable guarantees in the process. By bringing them into one place, they can be easier and cheaper to manage, and you can keep a closer eye on how much your overall pension savings are worth.

Think carefully about what you will need in retirement

It’s not easy to imagine what retirement might look like – especially if it’s 20 to 30 years away. But assuming you will want to live a reasonably active life, you can estimate how much you will need to live on (in today’s money) to live a happy and fulfilling life similar to the one you enjoy today.

Consider staying invested in retirement

More and more investors are keeping their pension savings in income drawdown well into retirement rather than locking into an annuity. While an annuity guarantees you a set income for life, income drawdown gives your savings the opportunity to grow in value throughout retirement. Some investors decide on a combination of the two.

Consider other sources of income

Our research found that 18% of people expect to rely on money tied up in their homes by either downsizing or using equity release. You should also factor in any other savings and investments you have, such as ISAs or rental property.

Seek help from an expert

If all of this feels rather daunting, be sure to seek help from an expert. Contrary to popular belief, you don’t need to be rich to afford a financial planner. They can help you think practically about retirement and establish your goals, then put measures into place to achieve them.

It’s never too early to start. And it’s never too late— but if you want to stand a chance of achieving a £34,000 a year income in retirement, you need to start now.


18 October 2021
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