How much should you save for retirement? Working out your number

There is no single right amount, but there is a reliable way to find yours: estimate the yearly income you will want, subtract any guaranteed income such as a state pension, and divide the gap by a cautious withdrawal rate. At 4%, that means a pot of about 25 times the yearly gap. The retirement calculator then shows whether your current saving is on course, in today's money.

Start with the income you need

Begin with what you spend now and adjust it. Some costs usually fall in retirement: commuting, work clothes, pension contributions and, for many people, the mortgage. Others can rise: travel, hobbies, home repairs and healthcare, which varies a lot by country. Then subtract income you can count on: a state pension or Social Security, and any workplace pension that pays a fixed income rather than a pot. In the UK, gov.uk shows your State Pension forecast and age; in the US the Social Security Administration gives an estimate. What remains is the gap your own savings must fill.

From income to a target pot

A withdrawal rate turns that gap into a pot size. The well-known 4% rule comes from studies of US historical returns in the 1990s, including William Bengen's work and the later Trinity study, which found that withdrawing 4% of the starting pot, raised each year with inflation, would have lasted at least 30 years in most historical periods. Dividing by 4% is the same as multiplying by 25. If you need 24,000 a year from savings, the target is about 600,000 in today's money; at a more cautious 3.5%, it is about 686,000. Retiring early, expecting lower returns or wanting more certainty all argue for a lower rate. The rule is a planning shortcut, not a guarantee.

How contributions grow

The calculator's default example is a 35-year-old with 40,000 already saved, paying 500 a month (including any employer contribution), raising that by 2% a year, and assuming a 5% annual return until retiring at 67. The pot grows to about 799,000, of which about 305,000 was paid in and the rest is growth. But at 2.5% inflation, that is worth only about 362,000 in today's money, which at a 4% withdrawal rate supports about 1,208 a month. The gap between those two figures is why the calculator shows both: a projection decades out is meaningless unless it is translated into today's prices. How inflation erodes savings, and how to measure it explains the adjustment.

Why starting age matters

Time does most of the work, through Compound interest, explained with real numbers. Run the calculator from a zero starting pot with 300 a month, rising 2% a year, at the same 5% return and 2.5% inflation, retiring at 67:

• Starting at 25: about 244,000 in today's money.
• Starting at 35: about 164,000.
• Starting at 45: about 100,000.

Starting ten years earlier adds roughly 80,000 in today's money, much of it from growth rather than extra contributions. If you are starting late, the levers that remain are a higher monthly amount, any employer match you are not yet taking, and working or partly working a little longer.

Returns, inflation and fees

The return is the input nobody controls. In the default example, changing it from 5% to 4% cuts the pot to about 646,000, while 6% raises it to about 997,000. Run more than one rate and plan around a cautious one. Fees work directly against the return: a 1% annual charge turns a 5% return into roughly 4%, and the investment fee calculator shows what that costs over decades. Taxes and how investment returns vary from year to year are outside this calculator, and a poor run of returns just before or after retiring can matter a great deal. A regulated adviser or your pension provider's own planner can include those.

Making the plan real

Tax rules make the type of account important: workplace pensions and personal pensions in the UK, 401(k)s and IRAs in the US, and their equivalents elsewhere often add tax relief or employer contributions that ordinary savings do not get. The pension contribution calculator shows how relief and employer payments add up, and the compound interest calculator shows the growth mechanism on its own. Revisit the numbers every year or two, and after any big change in income. The calculator stores nothing, and its results are arithmetic based on your assumptions, not a forecast or advice.