What total pot do you need to retire at your target age?

01 Start with the gap, not the income

The pot funds the difference between what you spend and what arrives guaranteed. A household spending £34,000 with two full State Pensions of about £25,100 has a gap of £8,900, and that gap is what the pot has to produce — not £34,000.

That distinction is the difference between a £250,000 target and a £970,000 one at the same withdrawal rate. It is why working out what you actually spend comes before any pot calculation.

Defined benefit pensions belong in the guaranteed column too, at their actual annual figure. A £9,000 scheme pension reduces the required pot by roughly £250,000 at a 3.5% withdrawal rate, which is a much larger effect than most people attribute to it.

Two people can therefore have wildly different numbers on the same spending. A household with two full State Pensions and a small defined benefit pension may need a quarter of what an otherwise identical household with neither requires. Working out the guaranteed column properly is the highest-value hour in the whole exercise, and it is usually done last if at all.

Source: Plan your retirement income

02 Choose a divisor you can defend

Divide the gap by a sustainable withdrawal rate rather than by an assumed return. The two are not the same: a portfolio can return 6% on average and still fail at a 6% withdrawal, because the order of returns matters when money is coming out.

A rate between 3.5% and 5% covers most honest positions, with the lower end for a rigid withdrawal and the higher end for someone genuinely able to cut spending after a bad year. The choice between those two ends changes the required pot by more than a third.

Charges come off the rate directly. A plan built on 4% with total costs of 1% is really a plan built on 3%, and the pot needs to be a third larger to match.

Source: Retirement income market data

03 Then add the bridge

Between stopping work and the State Pension starting, savings fund everything. That is full spending, not the gap, for every year of the interval — and it is a separate sum on top of the ongoing requirement rather than something the withdrawal rate absorbs.

Someone stopping at 58 with a State Pension age of 67 needs nine years at full spending. At £34,000 that is £306,000, and it has to be available from accessible assets, which means the normal minimum pension age constrains it as well as the balance.

The bridge is also the period where sequence risk is highest, because withdrawals are largest relative to the pot. That argues for holding the bridge years in something more stable than the long-term portfolio.

On the defaults above, the worked example shows £560,429. The ongoing gap needs £254,429 and the 9-year bridge needs £306,000 on top of it.

Source: Check your State Pension age

04 Why guaranteed income beats saving more

Every £1,000 of additional guaranteed annual income removes about £28,600 from the required pot at a 3.5% withdrawal rate. Filling a National Insurance gap for £956.80 buys about £358 a year for life, which reduces the required pot by around £10,200 — a return no saving rate matches.

Deferring the State Pension does the same thing at a larger scale. So does buying an annuity with part of the pot, which converts capital into income at a rate above any sustainable withdrawal rate precisely because it has no residual value.

That is the structural insight in this calculation: raising the floor is more efficient than raising the pot, because the floor is not subject to a withdrawal rate at all.

Source: Voluntary National Insurance

05 Putting the number together

Gap divided by withdrawal rate, plus full spending times the bridge years. Then sanity-check it: is the bridge portion accessible at the age you plan to stop, and does the ongoing portion survive a lower return and higher inflation?

Recalculate annually rather than once. The gap changes when a defined benefit pension is revalued or a National Insurance year is added, and the bridge shortens with every year you work past the original date.

And treat the answer as a range. A number computed to the pound from assumptions held to one decimal place is a false precision that makes people either give up or stop too early.

It is also worth stress-testing the number rather than solving it once. Run it at a withdrawal rate half a point lower and an inflation rate a point higher, and see what the target becomes. If a small change in assumptions moves the answer by hundreds of thousands, the plan is more sensitive than it looks and the response is more guaranteed income rather than a bigger spreadsheet.

Source: MoneyHelper: pensions and retirement