What does it actually cost to retire well?

Most people frame retirement as a target. Hit a number, then you’re set. It’s the wrong question.

The number that actually determines whether retirement works isn’t your pot size, it’s how much of it you can safely draw out each year without running dry.

Why “how much do I need” is the wrong question

A large pot with a withdrawal rate that’s too aggressive can run out. A smaller pot drawn carefully can last decades. The lump sum tells you what you’ve got. It doesn’t tell you how long it’ll last, or whether the income it produces will actually cover the life you want.

The more useful question is a withdrawal rate: what percentage of the pot can you take out each year, adjusted for inflation, without exhausting it before you do.

What is a sustainable withdrawal rate?

You may have come across the “4% rule”, a widely cited rule of thumb from retirement planning research. The idea: withdraw around 4% of your pot in year one, then adjust that amount for inflation each year after, and historically a portfolio built that way had a good chance of lasting 30 years.

Treat it as a starting point for the conversation, not a personal answer. It’s a general heuristic, built on historical market data and a specific set of assumptions about portfolio mix and time horizon. Your actual sustainable rate depends on your own circumstances, and can sit meaningfully above or below 4%.

What actually affects your number?

A handful of factors move your real number away from any generic rule of thumb:

Your portfolio mix. A higher allocation to growth assets can support a different withdrawal rate than one weighted toward cash and bonds, but it also carries different risk.

How long your money needs to last. Retiring at 60 with a long life expectancy ahead needs a more conservative rate than retiring at 70.

Other income you’re already receiving. The State Pension and any other guaranteed income reduce how much your pension pot actually needs to cover.

Market conditions early in retirement. A market downturn in your first few years of drawdown does more damage to a portfolio’s longevity than the same downturn ten years in. This is sometimes called sequence risk, and it’s one of the reasons a fixed percentage rule doesn’t fit everyone equally well.

Why this isn’t a “set and forget” number

A withdrawal rate calculated once at retirement and never revisited is a rate calculated for circumstances that will have changed. Markets move. Spending needs shift. Life expectancy assumptions get revised. What looked sustainable at 65 might need adjusting at 75, in either direction.

What can you do about it?

A few starting points, before assuming a generic percentage applies to you:

• Work out what you actually need to spend, separating essential costs from the discretionary ones you have more control over in a bad year.
• Check what guaranteed income you already have coming, including the State Pension, before working out what your pension pot needs to provide on top.
• Model more than one withdrawal rate against more than one market scenario, rather than picking a single number and assuming it holds regardless of what markets do.
• Revisit the number periodically, not just once at retirement.

None of this has a one-size answer, and it shouldn’t. If you want to work out what a sustainable rate actually looks like for your own pot, risk appetite, and other income, that’s exactly the kind of thing your adviser is there for. Get in touch whenever suits.

FAQ

What is a safe withdrawal rate for a pension?

There’s no single number that applies to everyone. The commonly cited “4% rule” is a widely used starting point from retirement planning research, but your actual safe rate depends on your portfolio mix, how long the money needs to last, and what other income you already have.

Does the 4% rule work in the UK?

The original research behind the 4% rule was based on US market data and a specific historical period. It’s a reasonable general reference point, but UK retirees typically also have State Pension income to factor in, along with different tax and portfolio considerations, so it shouldn’t be applied without adjusting for your own circumstances.

How does my State Pension affect my withdrawal rate?

Guaranteed income like the State Pension reduces how much your own pension pot needs to generate. Two people with identical pots but different State Pension entitlements could reasonably use different withdrawal rates from their personal savings.

Should my withdrawal rate change year to year?

It can, and often should. A rate that made sense at the start of retirement may need revisiting after a strong or weak run in markets, a change in spending needs, or a shift in life expectancy assumptions. Treating it as fixed for 30 years is one of the more common planning mistakes.

When should I start planning my retirement income?

Well before the day you actually stop working. Understanding what a sustainable withdrawal rate might look like for your own pot gives you time to adjust contributions, retirement age, or spending expectations, rather than discovering the number doesn’t work after you’ve already retired.

About the author

Written by the team at Sedulo Wealth, part of Sedulo Group. Sedulo Wealth is a team of independent financial advisers providing planning-led wealth management for individuals, families, and business owners, backed by in-house expertise across tax, accounting, and investment management. As independent advisers, the team isn’t tied to any single provider, so financial plans are built around the client’s actual circumstances rather than a fixed product set.