When it comes to planning for retirement, private pension savings can be a great way to enhance your income beyond what the State Pension offers. But you might be wondering: how far will your savings really go?
Let’s break down the potential income you could take from a £400,000, £500,000 or £600,000 pension pot.
What kind of retirement lifestyle do you want to have?
Before we can put numbers on your savings goals, it helps to visualise what different size pension pots can buy you in terms of holidays, cars and dinners out.
Thanks to research from the Pensions and Lifetime Savings Association (PLSA), you can visualise how far your money can go in retirement. Its Retirement Living Standards are categorised into ‘minimum’, ‘moderate’ and ‘comfortable’, and showcase the lifestyle you could achieve at three different income levels.
| Retirement lifestyle | Monthly income in retirement | Annual income in retirement |
|---|---|---|
| Minimum | £1,200 | £14,400 |
| Moderate | £2,608 | £31,300 |
| Comfortable | £3,592 | £43,100 |
Source: The Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards report. Assumes a single person.
To help picture the kind of lifestyle you could have at these income levels, the PLSA has matched up common goods and services with each living standard:
- A minimum lifestyle - covers all your basic needs. On top of this, you could expect to eat out once a month, enjoy a holiday in the UK once a year and take part in some leisure activities twice a week. You wouldn’t however, expect to have the budget to run a car.
- A moderate lifestyle - covers all your basic needs and you’d have a little more financial security. You could go abroad once a year, enjoy a weekend away in the UK and eat out a few times a month. You’d also have the flexibility to run a car and replace it every 10 years.
- A comfortable lifestyle - would cover all of your needs as well as a few luxuries and, of course, offer increased financial freedom. You could enjoy two foreign holidays a year, regular beauty treatments, make home improvements and replace your car every five years.
It could be worth budgeting with these income levels in mind as the more you save now, the more financial freedom you can expect to enjoy in the future.
How to take retirement income
Most personal and workplace pensions these days are defined contribution, which you can usually access from age 55 (which is rising to 57 in 2028). Many people opt to wait until they reach their State Pension age to retire (currently 66, rising to 67 by 2028).
If you have a defined contribution pension, you can choose to withdraw your savings gradually through a method called ‘drawdown‘. This allows you to take an income from your pension while leaving the rest invested in the stock market.
Back in 1994, Financial Adviser William P. Bengen created the ‘4% rule’ as a guideline for retirement spending based on historical stock and bond returns. It assumes you adjust for inflation each year and withdraw for 30 years.
With this in mind, let’s look at what that 4% withdrawal figure means in reality.
Income from a £400,000 pension pot
With a £400,000 pension pot you could take an income of £16,000 a year using the 4% rule. Add the full new State Pension and this jumps up to £27,970 a year. This would exceed the £14,400 required for a minimum standard of retirement - but not meet the level for a moderate standard - for a single person, according to the PLSA.
| Income sources | Monthly income in retirement | Annual income in retirement |
|---|---|---|
| Personal pension only | £1,333 | £16,000 |
| Personal pension and full new State Pension | £2,331 | £27,970 |
Notes: The figures are rounded and pre-tax. Assumes retirement at 66 with a full new State Pension entitlement as of the 2025/26 tax year. The calculations use the 4% withdrawal rule (the pot size divided by 25 as an annual income in retirement, then adjusted for inflation in subsequent years to maintain its purchasing power).
Income from a £500,000 pension pot
With a £500,000 pension pot you could take an income of £20,000 a year using the 4% rule. This could be topped up to £31,970 a year with the full new State Pension. In practice, this lines up neatly with the £31,300 amount required for a moderate standard of retirement for a single person, according to the PLSA.
| Income sources | Monthly income in retirement | Annual income in retirement |
|---|---|---|
| Personal pension only | £1,667 | £20,000 |
| Personal pension and full new State Pension | £2,664 | £31,970 |
Notes: The figures are rounded and pre-tax. Assumes retirement at 66 with a full new State Pension entitlement as of the 2025/26 tax year. The calculations use the 4% withdrawal rule (the pot size divided by 25 as an annual income in retirement, then adjusted for inflation in subsequent years to maintain its purchasing power).
Income from a £600,000 pension pot
Finally, with a £600,000 pension pot you could take an income of £24,000 a year using the 4% rule. After including the full new State Pension this becomes £35,970 a year. This comes closer to meeting the £43,100 amount required for a comfortable standard of retirement for a single person, according to the PLSA.
| Income sources | Monthly income in retirement | Annual income in retirement |
|---|---|---|
| Personal pension only | £2,000 | £24,000 |
| Personal pension and full new State Pension | £2,998 | £35,970 |
Notes: The figures are rounded and pre-tax. Assumes retirement at 66 with a full new State Pension entitlement as of the 2025/26 tax year. The calculations use the 4% withdrawal rule (the pot size divided by 25 as an annual income in retirement, then adjusted for inflation in subsequent years to maintain its purchasing power).
How to build a £400,000, £500,000, £600,000 pension pot
Assuming you have no pension savings and aim to retire at age 65, the below table shows how much should go into your pension each month to achieve total savings of £400,000, £500,000 and £600,000 by age 65.
It assumes investment growth of 5% a year, inflation at 2.5% and management fees of 0.70% a year. It also assumes Auto-Enrolment contributions of £210 a month being made into a workplace pension - that’s later consolidated into one main pot.
| Starting age | Monthly payments to achieve £400,000 pension pot | Monthly payments to achieve £500,000 pension pot | Monthly payments to achieve £600,000 pension pot |
|---|---|---|---|
| 20 | £260 | £370 | £470 |
| 25 | £330 | £460 | £580 |
| 30 | £430 | £580 | £730 |
| 35 | £560 | £740 | £920 |
| 40 | £730 | £960 | £1,200 |
| 45 | £1,000 | £1,300 | £1,600 |
| 50 | £1,450 | £1,850 | £2,250 |
Source: The figures have been rounded and calculated using PensionBee’s Pension Calculator. Contribution amounts are inclusive of basic rate tax relief.
Listen to episode 11 of The Pension Confident Podcast as our guests discuss what a happy retirement looks like and how you can get there. Listen on all major podcast platforms, watch on YouTube, or read the transcript.
Summary
Here are some key points to remember:
- private pension savings can boost your retirement income beyond the State Pension;
- you could receive tax relief on contributions, plus employer contributions through Auto-Enrolment, helping you grow your pension pot quicker; and
- the sooner you start saving, the longer your money will have to grow thanks to compound interest - putting you on track for a more comfortable retirement.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
