How much to save? What it takes for a 'comfortable' retirement

The results are in. According to new research, the cost of retirement has risen again, and a single pensioner seeking a ‘comfortable’ life needs £43,900 of spending money a year.

• Read: Income needed for a ‘comfortable’ retirement - the basics explained

But how big a pension pot is required to generate that kind of income?

There are a couple of points to clear up at the outset. First, the Pensions and Lifetime Savings Association (PLSA), which published the figures, assumes you are rent and mortgage-free. If you are still paying for housing, you need to take their estimates with a large pinch of salt.

Second, £43,900 refers to expenditure, not gross income. Given a chunk will be going to the tax man, gross income actually needs to exceed £50,000 to be classed as comfortable - as shown in the table below.

Source: Pensions and Lifetime Savings Association, 3 June 2025

The annuity route

In total, the PLSA thinks pre-tax income of £52,220 is comfortable for a single retiree. Assuming you are entitled to the full state pension, this means you must generate £40,245 a year from your own pot.

There are two ways of achieving this. The first option is to buy an annuity. Annuities provide lifelong, regular income in exchange for a lump of your savings.

A wide range of factors affect annuity rates, including your age, your health and the state of the economy.  As such, the PLSA is vague about how much money you will need to spend. Anything from £540,000 to £800,000 could be sufficient, it says.

Let’s run through a couple of hypothetical scenarios, however.

According to the UK’s largest annuity broker Hub Financial, a healthy 65-year-old could spend just £521,000 on a single-life annuity and secure £40,245 a year, with a five-year guarantee. In this scenario, however, annual income would not increase over time so could be eroded by inflation.

Rates are less favourable if you want your income to climb each year. A healthy 65-year-old would have to spend around £711,000 on an annuity with 3% escalation, for example, to hit the comfortable mark, as of May 2025.

Remember: many people take 25% of their pension as a tax-free lump, before buying an annuity with the remainder. The pot you need to achieve the ‘comfortable’ level of income can be reduced if you plan to use your tax-free cash to provide an income.

Source: Hub Financial, 6 June 2025

Drawdown option

Those in search of financial flexibility may opt for income drawdown over an annuity. This involves keeping some or all of your pension pot invested while taking regular income from it.

The Fidelity Pension Drawdown Calculator helps you calculate how long your invested pot is likely to last, assuming you want your income to grow by 2% a year.

If you are 65 and seeking annual income of £40,245, a £700,000 pot could be a reasonable starting point, once you have taken your tax-free lump sum.

Assuming the investment performance of your pension is ‘average’, a £700,000 pot could last until you are ninety. If the investment performance is ‘good’, you could have nearly £240,000 left at the ripe age of 100.

Returns are not guaranteed, however, and problems could arise if the performance of your investments is worse than average. In this case, you risk running out of money by the age of 83.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a SIPP and tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.