Between fluctuating costs, unexpected shocks, and increasing life expectancies, it’s surprisingly tricky to work out how much income you’ll need to fund your retirement.

Yet, underestimating this figure is more common than you might think. According to Pensions Age, 83% of British adults underestimate the annual income recommended for a single pensioner living a “moderate” lifestyle by at least £10,000.

This kind of shortfall could have a significant effect on your standard of living further down the line.

So, continue reading to learn why the cost of retirement might be more than you think, and how you can build a clearer picture of what you’ll realistically need.

The cost of retirement may be more than you initially expect

The Pensions and Lifetime Savings Association states that a single person might require a yearly retirement income of:

• £13,400 for a “minimum” retirement
• £31,700 for a “moderate” retirement
• £43,900 for a “comfortable” retirement.

While these numbers can be useful, it’s vital to remember that these are only benchmark figures.

The true cost of your retirement will depend on your individual circumstances and external factors. The amount you realistically need to save may differ significantly from that of your friends and family.

Inflation can reduce the value of your retirement wealth over time

One of the more important – and often overlooked – factors is inflation. Over time, the cost of living rises, meaning your money doesn’t stretch as far.

As of 17 June 2025, the Office for National Statistics reveals that the Consumer Prices Index (CPI) stands at 3.5%.

While this might seem relatively low, it could still significantly reduce the real-terms value of your income over time.

Rising life expectancies might mean you need income for longer than you think

According to the Office for National Statistics, 65-year-old men in the UK in 2023 can expect to live a further 19.8 years. This rises to 22.5 years for women.

Of course, these are just averages, and many people live well into their 100s.

This could mean you need to fund a 20-, 30-, or even 40-year retirement, which could be challenging to plan for.

Care costs could be a significant expense

Longer lives tend to increase the chances of requiring care later on, and this can be expensive.

Carehome.co.uk states that the average weekly cost of care for self-funders as of 6 June 2025 is:

• £1,291 for residential care, translating to £67,132 a year
• £1,545 for nursing care, equivalent to £80,340 a year.

Even short periods of care could put pressure on your finances, especially if you don’t plan for them in advance.

Your spending may change throughout retirement

It’s also worth noting that your retirement spending likely won’t follow a linear path. Instead, it may follow a “bell curve”.

You may spend more in the early years as you tick items off your bucket list, before settling into a more predictable routine. Later, your income needs may rise again if you require support, healthcare, or nursing care.

3 practical ways to arrive at a realistic retirement figure

1. Consider your goals for retirement

The first logical step in determining how much you’ll need for retirement is to identify your goals. After all, your retirement should be shaped around your lifestyle, not the other way around.

Knowing what you’re aiming for tends to make it easier to estimate how much you’ll need to support this desired lifestyle.

2. Take stock of your existing retirement wealth

Before you can determine whether you’re on track to achieve your retirement goals, you need to understand how much retirement wealth you’ve already accumulated.

This might mean reviewing all of your income sources, including:

• Pensions (workplace and personal)
• ISAs, savings and investment accounts
• Property and buy-to-let income.

Having a complete picture of your current situation could help you identify any gaps in your retirement wealth, allowing you to figure out ways to bridge them.

3. Obtain a cashflow model for the full picture

Cashflow modelling provides a visual representation of how your wealth will change over time.

By giving you a detailed view of your potential future finances, cashflow modelling provides clarity, helps you make informed decisions, and offers reassurance that you are on track.

Optimum Path could help you save towards your dream retirement

At Optimum Path, we use sophisticated cashflow modelling and detailed retirement plans to help you make confident decisions about your future.

We will work closely with you to determine your retirement goals, assess your current position, and build an income strategy that’s designed to last, no matter what life might throw your way.

Be sure to contact us now to find out how our Chartered financial planners can help.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate cashflow modelling.