How much do you actually need to retire?

Start from spending, not from a round number

Almost every scary retirement headline starts with a pot size. That is the wrong end of the problem. What you need is an annual income, and the pot is just whatever produces it.

Take your current monthly spending and adjust it for the life you expect. The mortgage may be gone. Commuting and work clothes disappear. Travel, hobbies, heating during the day and eventually care costs tend to rise.

• Write down today's essential spending: housing, food, energy, insurance, transport.
• Add the discretionary life you actually want: travel, gifts, eating out, hobbies.
• Subtract what genuinely stops at retirement, and add what starts.

Subtract guaranteed income before sizing the pot

The state pension, any defined benefit scheme and any rental income all reduce the job your pot has to do. This step alone often cuts the target dramatically, and it is the step people skip.

Only the shortfall between your target income and your guaranteed income has to come from savings and investments.

Turn the shortfall into a pot

A rough sanity check is to multiply the annual shortfall by 25, which assumes a 4% withdrawal rate. If your shortfall is £20,000 a year, that points to roughly £500,000.

Be careful with that multiplier. Retiring early, high charges or a long life all mean drawing less than 4%, which means needing a larger pot. Multiplying by 30 instead of 25 is a more cautious framing.

Then check the gap while you can still fix it

The value of doing this at 40 rather than 60 is that the fix is small. An extra 2% of salary for twenty years is invisible in a monthly budget and enormous in a pot.