Working out what you actually need
The number everything else depends on — and why retirement spending isn't a flat line.
Every retirement projection you've ever seen rests on one figure: the annual income you'll need. It's usually the least examined number in the whole exercise, and it's entirely capable of being wrong by twenty thousand pounds a year in either direction.
Get it too high and you work years longer than necessary. Get it too low and you find out at 78, when doing anything about it's no longer an option.
Start with what you actually spend now
The most reliable predictor of your spending in retirement is your spending now, adjusted for what changes. Twelve months of bank and card statements will tell you more than any rule of thumb.
Then adjust for the things that genuinely shift:
Falls away: commuting, pension contributions, National Insurance on earnings, work clothes and lunches, and — for many people — the mortgage and the cost of children.
Rises: heating and daytime energy use, travel and hobbies in the early years, and eventually care and help around the house.
Appears from nowhere: replacing the car, a new boiler or roof, helping children with deposits, and weddings.
That last category is the one projections systematically miss. A flat annual figure implies no lumpy costs ever occur, which has never been true of any actual life.
The replacement ratio, and its limits
The traditional shortcut is that you need somewhere between half and two-thirds of your pre-retirement income. It's a reasonable sanity check and a poor plan.
The ratio breaks down at both ends. Someone on a modest income spends nearly all of it on things that don't stop in retirement — so their real ratio is far higher than two-thirds. Someone on a high income who has been saving aggressively may find their actual living costs are a much smaller fraction of gross pay than the rule suggests, because so much of that pay was never being spent in the first place.
Use it to check your own figure. Don't use it instead of one.
The three tiers
Pensions UK — the trade body formerly known as the Pensions and Lifetime Savings Association — publishes Retirement Living Standards, which describe three levels of retirement in terms of what they actually contain rather than as abstract percentages. The research is carried out by Loughborough University's Centre for Research in Social Policy, based on discussion groups with members of the public, and updated annually.
The 2026 figures, covering the 2026/27 year, are:
- Minimum — all your needs covered with a little left for fun, but no car and one week's holiday in the UK. £13,900 for a one-person household, £22,500 for two people.
- Moderate — more security and flexibility: a small car replaced every seven years, a two-week foreign holiday and a long weekend in the UK. £32,700 for one person, £45,400 for two.
- Comfortable — more spontaneity, a better car replaced more often, a four-star fortnight abroad and several UK breaks. £45,400 for one person, £62,700 for two.
Four things to hold in mind when you look at them.
They are spending figures, not gross income. These are amounts you need after tax. Depending on where your income comes from, you may need to draw considerably more than the headline figure to be left with it.
They assume you own your home outright. No rent, no mortgage. If you'll still be paying for housing, add it on top — it can change the picture entirely.
Two people don't need twice as much. Look at the middle and top rows: £45,400 buys one person a comfortable retirement and two people a moderate one. Sharing bills, a car and a home makes a striking difference, which is the flip side of the fact that living alone in retirement is expensive.
They are national figures, excluding London. Housing, council tax and day-to-day costs in the North East run below the UK average, which means the same standard of living costs less here than the headline numbers imply. It's one of the genuine advantages of retiring in this part of the country, and it's worth building into your own figure rather than accepting a national average that was never about you.
Retirement spending is a smile, not a line
Real spending data shows a consistent shape across retirements.
The early years — roughly 60 to 75. Spending is at its highest. You're healthy, newly free, and doing the things you deferred: travel, the projects, seeing family, running two cars. Many people spend more in their first few years of retirement than in their final years of work.
The middle years — roughly 75 to 85. Spending drifts down, often substantially. Long-haul travel stops, the second car goes, the appetite for expense simply reduces. This decline is well documented and almost universally ignored by planning tools, which assume a flat line adjusted for inflation.
The later years — 85 onward. Spending rises again, sometimes very steeply, and the driver is care. Home help, adaptations, and eventually residential care, which in the North East can run to well over a thousand pounds a week for a good home.
The practical implication is that a flat inflation-linked income is a poor match for real needs. Front-loading income into the active years, and holding a genuine reserve for the care years, fits the actual shape of a life better than a straight line does.
The care question
There's no way to plan retirement spending honestly without confronting care, and no comfortable way to do it.
Most people never need residential care. A significant minority do, and for those who do the cost can run into six figures. The means test currently draws on your capital down to a floor, with the value of your home included once you move into residential care permanently and no qualifying relative remains there.
You can't insure against this in any straightforward way, and giving assets away to avoid it runs directly into the deprivation of assets rules — local authorities can and do assess people as still owning what they gave away, and motivation and timing matter enormously.
What you can do is model it. Run your plan with three or four years of care costs at the end and see whether it survives. If it does, you've a genuine margin. If it doesn't, you've found something out early enough to act on.
Separate the floor from the rest
The single most useful thing to do with your number is split it in two.
The floor is what you must have: housing costs, council tax, energy, food, insurance, transport, and the minimum of everything else. This is the amount that has to arrive whether markets are up or down.
The rest is discretionary: travel, hobbies, gifts, meals out, the good version of everything. It can flex with circumstances, and it should.
This split is the foundation of the annuity question. How much of the floor you guarantee, and how much you leave flexible, is one of the central decisions in retirement planning — and you can't make it until you know where the line between the two sits.
Then work in today's money
Every figure above should be in today's money. Inflation-adjusting each year yourself is possible but makes the numbers meaningless to look at — nobody has an intuition for what forty thousand pounds means in 2048.
Model in real terms, use a growth rate net of inflation, and you can compare the output directly with what things cost now. That's how the Retirement Readiness Calculator presents its results, with a toggle if you want to see the nominal figures.
This article is for general education only and isn't personal advice. A projection is only as good as the figures you put into it, and working out a realistic spending number is exactly what a cashflow planning exercise is for — get in touch if you'd like help building yours.
Related in this series
If reading this raised a question about your own situation, get in touch.
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