How to budget for retirement

Know your retirement income

The first step is working out where your retirement income is going to come from.

State Pension

You might be eligible for the State Pension - a regular monthly payment from the government. The current access age is 66 (rising to 67 from 2028) and the amount you get will depend on how many years of National Insurance (NI) you’ve paid. You’ll need to have at least 10 ‘qualifying’ years to receive anything. If you have 35 ‘qualifying’ years of NI contributions, you’ll get the full new State Pension. This is currently £11,973 per year, which works out at £230.25 per week 2025/26.

You can check how much State Pension you’ll get by looking at your NI record at GOV.UK.

Workplace pensions

Thanks to Auto-Enrolment, lots of full-time and part-time workers will be enrolled in a workplace pension scheme. These days, most workplace pensions are defined contribution pensions. The access age for these is 55 (rising to 57 in 2028) and the amount you get will depend on:

• how much you’ve contributed over time; and
• the performance of your investments.

If you’re still working, you should be able to find out from your employer what pension you have with them. But if you’ve had multiple jobs, you could have old pension pots too. It’s worth tracking these down to get a full picture of your total retirement savings. Read our blog on 4 steps to finding a missing pension.

Personal pensions

If you’ve been paying into a personal or private pension, this will likely be a defined contribution pension too. Similar to your workplace pension, the value of this will depend on your contributions and investment performance, and you’ll be able to access the money from age 55 (rising to 57 from 2028). Contact your provider or log in to your online account to find out how much you have.

Other income

You might have other sources of income, such as:

• rent from property you own;
• money in savings or investment accounts;
• earnings from part-time work; or
• any state benefits.

Estimate essential spending

Now you have an idea of where your income is going to come from in retirement, it’s time to think about your expenses. Start with essential spending. This covers the things you need to live and these costs don’t go away when you retire.

Your biggest expense will probably be housing - whether that’s mortgage payments, rent, Council Tax, home insurance, or utility bills for gas, electricity and water. You’ll also need money for home repairs and maintenance, which can be expensive as your house gets older.

You’ll still need to eat and keep your home clean and comfortable, which means budgeting for your weekly food shop, cleaning products, toiletries, and new clothes. Getting around costs money whether you drive or use public transport. Don’t forget about other payments like life insurance and contents insurance, plus any debts you might be paying off.

It’s always wise to have some money set aside for unexpected costs too. For example, replacing broken appliances or healthcare costs.

Add lifestyle goals

Once you know your essential costs, think about what you want to do in retirement. This is the fun part of budgeting.

Retirement is a great time to enjoy hobbies and activities or try new things like joining a gym or taking up painting. Many people dream of travelling more when they retire, whether that’s UK holidays or trips abroad.

Staying connected with friends and family is important for your happiness through meals out, cinema trips, or entertaining at home. You’ll probably want to keep giving birthday and Christmas gifts. And if you have kids and grandkids, you might want to help them out with education costs, house deposits or treat them with cash gifts on special occasions.

Using the Retirement Living Standards as a guide

Now you can put everything together to create your retirement budget. Your lifestyle, and the budget you need, will be personal to you. But you can use the Retirement Living Standards from Pensions UK as a guide. These can help you visualise your retirement lifestyle at three different income levels. The table below shows each retirement lifestyle plus the monthly and yearly income a single person would need to achieve it (2025/26).

• A minimum lifestyle - covers the cost of all your basic needs, and some left over for fun. A self-catering or half-board holiday in the UK, eating out once a month and some affordable leisure activities with family and friends once or twice a week.
• A moderate lifestyle - provides more financial security and flexibility than the Minimum. An annual overseas holiday and a long weekend off peak break in the UK, and a take-away a week and eating out a couple of times a month.
• A comfortable lifestyle - allows more spontaneity to the Moderate lifestyle, including a fortnight abroad, extra-long weekends away in the UK, some day trips plus extra spending allowance on eating out and social activities.

5 steps to building your monthly retirement budget

Here’s a recap of those steps.

Step 1: List your income

Write down all the money you’ll get each month from your State Pension (if you’re eligible), workplace pensions, personal pensions, and any other sources of income.

Step 2: List your essential spending

Add up all your essential expenses including housing, food, transport, healthcare, and insurance. These are the things you can’t live without. Remember to include some money for emergencies and unexpected costs.

Step 3: Calculate what’s left

Take your essential spending away from your total income. This shows you how much money you have left for lifestyle goals and fun activities.

Step 4: Plan your lifestyle spending

Decide how to spend your leftover money on the things you want to do. You can use the Retirement Living Standards as a guide.

Step 5: Check the numbers

Make sure your total spending doesn’t add up to more than your income. If it does, you’ll need to either reduce your spending plans, find ways to increase your income, or think about delaying retirement.

How to make your retirement budget work

Don’t panic if your income doesn’t look like it’ll cover the retirement lifestyle you want. There are things you can do:

• Increase your income - you could work part-time in retirement, or check if you can claim benefits like Pension Credit. If you haven’t retired yet, you might want to increase your contributions to boost your pension now and retirement income later down the line.
• Reduce your costs - consider moving to a smaller home, choosing cheaper hobbies, or looking for discounts for older people. You could also review your insurance and utilities to see if you can find better deals.
• Delay your retirement - working later or reducing your hours and retiring gradually has many benefits for your mental and physical health. Plus it could give you time to boost your finances before you retire.

Stress test and review your budget annually

Your budget isn’t set in stone. You should check it regularly and update it if and when there are changes to:

• inflation and the cost of goods and services;
• benefits or State Pension amounts;
• your or your family’s healthcare needs; or
• your lifestyle goals.

One way to keep your budget flexible and adaptable is to review it every year and ask questions like:

• are my costs higher or lower than expected;
• has my income changed;
• do I want to do different things; and
• do I need to adjust my spending?

Tools to help you budget

You can use PensionBee’s range of pension calculators to help plan for retirement:

• Pension Calculator - see whether your current savings are on track to meet your goals and how contributions could impact your savings.
• Pension Tax Relief Calculator - see how much tax relief you could get on your pension contributions and whether you’re eligible to claim more.
• Drawdown Calculator - plan your withdrawals, see how much tax you’ll pay and the impact on your pot.
• Inflation Calculator - see the impact of inflation on your pension and how far it’ll go in retirement.
• State Pension Age Calculator - see what age you might be able to access the State Pension and if you’ll have a State Pension gap.

Risk warning

When investing, your capital is at risk. Investments 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.

Last edited: 23-09-2025