Let’s get this out of the way early: you don’t need a million-pound pension to have a good retirement.

Seriously. It’s time to shift the mindset from “How big does my pot need to be?” to something far more useful: “What kind of life do I want, and how much will it cost?”

Here, we focus on the main income streams most people actually draw on in practice:

1. The state pension
2. Workplace and personal pensions
3. Savings and investments outside pensions
4. Your home, if you choose to access its value later

When we look over all these things, we can start thinking practically about what those layers could add up to and what kind of lifestyle they will support. The first step in working that out is understanding what you’re likely to get from the state pension, and when. About 97 per cent of those in retirement get a state pension, so it’s the foundation that most build on with the rest of their retirement income. Everything else is layered on top.

It can feel a bit overwhelming when you start digging into all the moving parts, but don’t panic. If you understand how the state pension works, you’ve already ticked off one of the biggest pieces of the puzzle. That income layer gives you a base you can count on, and you’ll build the rest using your workplace and personal pensions, savings, and other investments to top it up, smooth it out, and bring your lifestyle to life.

So how much more will you need, on top of that base, to live the kind of retirement you really want?

It’s worth getting your head around some public retirement benchmarks — those official numbers used by planners, policymakers and researchers to help people set realistic retirement income goals.

There are two key benchmarks to understand: target replacement rates, and Pensions UK Retirement Living Standards

Target replacement rates

One of the most useful planning tools in retirement is something called a target replacement rate. It’s a fancy term for a simple idea: calculating the percentage of your working income which you’ll need to replace once you retire.

You may have heard rules such as: “You’ll need 70 per cent of your pre-retirement income in retirement.” That’s a target replacement rate. But let’s break it down with a UK lens.

• ‘The savings trick that boosts my retirement by £3,000 a year’

Pensions UK has published detailed benchmarks based on lifestyle types, covering minimum, moderate and comfortable retirement standards. These don’t use income percentages, but they do give us a clue.

A couple aiming for a moderate retirement will need £43,900 a year in 2025 prices. That’s roughly 60 to 70 per cent of average household earnings.

The Organisation for Economic Co-operation and Development (OECD) suggests that an average replacement rate for UK retirees sits at about 58 per cent, although this varies widely depending on income and pension type.

Lower earners might need a higher replacement rate (up to 80–90 per cent) to maintain their standard of living, because they spend most of what they earn.

Higher earners often get by with a lower percentage because more of their income went into savings or luxuries.

• What is the point of saving for retirement?

If you earned £50,000 a year, a 70 per cent replacement rate would suggest aiming for an income of £35,000 a year in retirement. This helps you reverse-engineer your savings goal, working out how much you’ll need to generate that level of income across the decades.

But replacement rates are not a rulebook, they’re a guide. Your actual number depends on:

• Your mortgage or rent situation
• How much you want to travel or support family
• Whether you’ll continue working part-time
• Your health, location and lifestyle

The Times retirement calculator will help you with your planning. Use it as a starting point, not a finish line.

Calculating a replacement rate

The median UK household disposable income (after tax and benefits) was £36,700 in 2023-24, according to the Office for National Statistics.

• Read more money advice and tips on investing from our experts

If you take that income and you’re aiming for a 70 per cent replacement rate in retirement, a common benchmark used by planners, you’d be targeting £25,690 a year, after tax.

This isn’t a hard rule, but it gives you a realistic baseline. Your actual number may be higher or lower depending on your lifestyle, spending habits, and housing costs in retirement. Think of this as a way to sanity-check your savings goals. Are you on track to replace the income you’ll actually need?

This is an extract from How to Have an Epic Retirement by Bec Wilson, published by Short Books