Retirement Spending: Why £5,000 a Month Is a Useful Benchmark - and What Pot You Need to Fund It
We talk a lot about cash flow modelling in retirement planning. And for good reason. It creates a visual illustration of your projected future wealth, helping answer that fundamental question: are you going to be OK? Or put another way: are you on track to have enough income and accessible capital to maintain your desired spending and live your best life?
That's all valuable. But there's a critical input that determines whether the entire exercise is worthwhile: your estimated spending need in retirement. What does the good life actually look like, and what does it cost?
The Easy Bit
For those already in retirement, or close to it, this question becomes relatively straightforward. Chances are you're already doing much of what you'll continue doing. You have a decent handle on monthly expenditure and can make sensible adjustments for the things that will change. Commuting costs will likely disappear. Travel and holidays might increase. But the exercise is generally manageable because you're estimating for a version of yourself you already recognise.
The Hard Bit
The problem emerges for those who are some years away from retirement. We might ask: what does retirement look like for you? The goal is to translate your answer into a quantifiable spending target that we can input into a cash flow model to determine whether you're on track.
But that exercise can be remarkably difficult. Imagine you're in your mid-to-late 30s with a busy job and a young family. That future retired self is completely alien. It's an unrecognisable figure compared to the one today who is busy spinning plates and putting out fires. The idea of what you might want to do with far more time and no work obligations feels impossibly abstract.
When we pose this question, responses vary considerably. Some have a good estimate based on current outgoings. Others model spending precisely and make accurate predictions. But many turn the question around: what do people normally spend?
Enter the PLSA Guidelines
This is where the Pension and Lifetime Savings Association (PLSA) provides some useful guidance. This independent body estimates and updates each year what they consider constitutes a minimum, moderate, and comfortable lifestyle in retirement - for single people and couples, both in London and outside.
Focussing on the "comfortable" lifestyle, which most of our clients would want to achieve at the very least. For a couple living outside London, the PLSA currently estimates this costs approximately £60,000 per year, or about £5,000 per month.
What Does "Comfortable" Actually Mean?
It's worth understanding what sits behind this figure. According to the PLSA, a comfortable retirement lifestyle includes:
Holidays: A fortnight 4* half-board Med holiday with £100 pp/day spending money, plus 3 UK weekend breaks with £400 spending money each. Includes extensive broadband, movie and TV subscriptions. £54/week pp for activities.
Food and drink: £134/week on groceries, £85/week on dining out, £32/week on takeaways, £105/month for hosting a monthly meal.
Leisure: Hobbies, gym membership, and cultural activities like theatre trips
Transport: 3-year-old small car (replaced every 5 years), £22/month on taxis, £208/year pp on rail fares.
Household: £600/year for property maintenance, £300 contingency.
Clothing: Up to £1,548/year pp on clothes and footwear.
Personal care: Regular hairdressing and personal grooming
Technology: Replacing items like laptops and mobile phones as needed
Helping others: £50 birthday and Christmas gifts for 12 people, £300/year for charity, £1,000 to support family (e.g. grandchildren’s activities and treats).
Essentially, it's a lifestyle where you're not worrying about day-to-day costs, you can afford to maintain your home properly, enjoy regular social activities and meals out, and take the holidays you want to take.
You can explore the full breakdown here: https://www.retirementlivingstandards.org.uk
Everyone Is Different
Of course, everyone is different. Your circumstances are unique, and spending needs will vary significantly around this £5,000 benchmark. Some will look at that figure and wonder how on earth one would manage on so little. Others will question how on earth one would spend that much. This is precisely where comprehensive, personalised cash flow modelling becomes invaluable - we can capture your specific goals, aspirations, and spending patterns.
But the £5,000-per-month guideline serves as a sensible starting point, particularly for those many years away from retirement whose future self feels completely unrecognisable. It's also useful for those struggling to imagine what they might spend in a world beyond mortgages, child-related expenses, and work.
The Follow-Up Question: What Pot Do You Need?
The natural next question is: what sort of pension pot do you need to fund this lifestyle?
The ‘cop out’ answer is that it depends on numerous factors - other income sources, investment risk profile, when you plan to retire, your health and longevity expectations, tax position, and how your spending might evolve over time. But let's apply another useful rule of thumb to give us a reasonable starting point.
The 4% Rule
The 4% rule stems from research by US financial planner Bill Bengen, published in 1994. He analysed long-term US stock and bond data (from the 1920s onward) to determine the highest sustainable withdrawal rate over any 30-year retirement, even when starting just before major market or inflation shocks.
His findings showed that starting with annual withdrawals of 4% of the initial pot—then increasing this in line with inflation—would have lasted through every 30-year period in the dataset.
Some now argue for more caution, citing lower expected returns and longer life expectancies - suggesting 3% to 3.5% may be safer. Others believe the rule is too conservative, especially when applying a flexible withdrawal strategy (i.e. reducing spending in tough markets) - an approach we support and will explore further in an upcoming blog.
For someone still decades from retirement, the 4% rule remains a useful planning assumption. It’s less relevant for those nearing or in retirement, where a more nuanced approach is needed - factoring in State Pension income, defined benefit schemes, ISA wrappers, tax efficiency, and the fact spending often tapers over time.
But as a long-term starting point? It’s a fair and sensible benchmark.
Putting It All Together
Let's return to our original question with some specific assumptions:
Desired spending: £5,000 per month (£60,000 per year) - a comfortable lifestyle according to the PLSA standards
Retirement age: 67
State Pension: Both partners qualify for the full new State Pension of approximately £11,500 each per year, totalling around £23,000 (or £2,000 per month)
Shortfall: £5,000 - £2,000 = £3,000 per month, or £36,000 per year
Using the 4% rule, we can work backwards: £36,000 ÷ 0.04 = £900,000.
So our couple would need a pension pot of approximately £900,000 to £1 million to meet their comfortable retirement spending goal.
The Tax Question
One important caveat: this calculation doesn't account for the tax treatment of pension withdrawals. For accurate planning, particularly as you approach retirement, we need to model the tax implications specifically. But for the purposes of a "getting started" benchmark many years out, the £900,000 to £1 million figure provides a reasonable target.
Summary
Your desired lifestyle in retirement is obviously unique to you. The comfortable lifestyle guidelines won't capture your specific aspirations - perhaps you dream of extended travel, supporting family members, pursuing expensive hobbies, or maintaining multiple properties. Or perhaps your needs are more modest.
But for those struggling to make a start with retirement planning, or finding it difficult to estimate that all-important spending goal, the £5,000-per-month level (for a couple, £4,000-per-month single) offers a credible benchmark. It represents a lifestyle where you can live comfortably, enjoy regular holidays, eat out when you want to, and not worry about everyday expenses.
From there, the question becomes: are you on track to accumulate the £900,000 to £1 million needed to support that lifestyle? And if not, what adjustments might you need to make—either to your savings strategy or to your retirement expectations?
Happy Thursday!
Kind regards,
George
George Taylor, CFA
Referrals Welcome
Our business grows mainly through personal recommendations. If you know someone—whether a friend, family member or colleague—who might benefit from financial planning, we’d be grateful if you could share my details with them. Alternatively, you can pass their details on to me, and I’ll be happy to reach out.
Regulatory Information
Blincoe Financial Planning Limited is an appointed representative of Sense Network Ltd, which is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales (No. 14569306). Registered Office: Star Lodge, Montpellier Drive, Cheltenham, GL50 1TY.
Important Disclaimer
This blog is for general information only and is intended for retail clients. It does not constitute financial or tax advice, nor is it an offer to buy or sell any specific investment. Since I don’t know your personal financial situation, you should not rely on this content as tailored advice. While we aim to provide accurate and up-to-date information, we cannot guarantee that all details remain correct over time. We are not responsible for any losses resulting from actions taken based on this blog’s content.
