The Real Cost of Retiring at 55

Many people feel reasonably confident about their retirement. They are usually enrolled in a workplace pension scheme, making regular contributions alongside their employer, and expect the State Pension to provide some support.

Some are ambitious, hoping to step back at 55 and leave the daily commute behind. Yet according to the Department for Work and Pensions, 4 in 10 working-age people are currently undersaving for retirement. Among those earning over £67,000 a year, that figure rises to 1 in 2 [1]. Simply having a pension is not the same as being able to support the retirement you want.

The Retirement Reality Check

Before judging whether a pension is on track, it’s important to know what the target looks like. Research from Pensions & Lifetime Savings Association illustrates the costs of different retirement lifestyles in today’s terms. A comfortable retirement, meaning financial freedom with some luxuries, requires around £43,900 a year for a single person. A moderate retirement, offering security and some comforts, comes in at £31,300 a year [2].

These figures often come as a surprise, and the gap between expectation and reality is striking. 91% of working-age people are not projected to meet the Comfortable Retirement Living Standard. Even the Moderate standard remains out of reach for 73% of those currently saving for retirement [1].

The numbers take on new meaning when you consider how long retirement can last. According to the Office for National Statistics, average life expectancy in the UK is around 81 years [3]. For someone retiring at 55, that means funding potentially 26 years of retirement. At £43,900 a year, a comfortable retirement over that period adds up to about £1,140,000. This is an illustrative figure in today’s terms that doesn’t account for inflation or personal circumstances.

The State Pension helps, but not immediately. For someone retiring at 55 and eligible for the full state pension, payments don’t begin until age 67, so the first 12 years must be covered entirely from private savings. Even after it starts, the full new State Pension of £12,547.60 [4] a year provides only around £175,000 over the remaining 14 years to age 81. That leaves approximately £964,000 to come from private pension savings.

What You Can Do About It

The first step is to build a clear picture of where you stand. Collate all your pension information, including any workplace schemes from previous employers and any private pensions you hold. Many people are surprised to find they have more pots than they realised, and some they had forgotten about entirely. Some pensions carry specific benefits or guarantees that are worth understanding before making any decisions. A financial adviser can help you make sense of what you have and what it is worth.

Once you have a full picture, use the PLSA Retirement Living Standards to establish the lifestyle you want in retirement and the age at which you want to retire. As illustrated above, multiplying the annual cost of that lifestyle by the number of years you expect to spend in retirement gives you a working target, a number to plan towards rather than guess at.

Compare that figure to the value of your current pension. If a shortfall exists, there are broadly two options: retire later, or increase contributions now. For those aiming to retire at 55, time is the most pressing constraint. A shortfall identified at 40 is far easier to address than one discovered at 54.

Knowing your allowance

For those looking to increase contributions into their pension, the annual pension allowance is worth knowing. It’s the maximum you can contribute to your pension in a given tax year, whilst still benefiting from tax relief on those contributions. For most people, the standard allowance is currently £60,000. However you'll only personally get tax relief on contributions up to 100% of your earnings if your earnings are less than the £60,000 annual allowance, or £3,600 - whichever is higher - in each tax year. This may be lower in two circumstances: for higher earners with an adjusted income above £260,000, where the allowance tapers down to a minimum of £10,000; and for those who have already flexibly accessed their pension, where a reduced allowance of £10,000 applies to future defined contribution pension savings [5]. A financial adviser can help you understand which allowance applies to your situation.

If someone has the capacity to contribute more in a single year, carry-forward rules are worth knowing. These allow you to use any unused annual allowance from the previous three tax years on top of the current year's allowance. For example, if you contributed £30,000 in each of the last three years, and are at the standard rate, you have £90,000 of unused allowance available to carry forward. This means you could potentially contribute up to £150,000 in a single tax year and still receive tax relief on the full amount, subject to your earnings and individual circumstances.

There is also the choice to retire later than planned. Having to sacrifice on the standard of living in retirement is a concern for many people. Especially given that the State Pension alone does not meet the PLSA minimum standard.

Neither decision should be taken alone. Calculating your pension can be complex, and it can be beneficial to have an adviser forecast through cashflow modelling exactly what you have and how long it’s predicted to last.

Understanding where you stand, what you need, and how to close the gap is exactly the kind of conversation a financial adviser is there for, and the sooner that conversation happens, the more options remain available.

Retiring at 55 is a realistic ambition for many, but realistic doesn’t mean automatic. It demands a clear understanding of what that retirement will cost, what the pension must deliver, and the importance of acting early to close any gaps. (Please note, retirement age increases to 57 in 2028)

You can click here to speak with an adviser.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

St. James's Place guarantees the suitability of the advice given by members of the St. James's Place Partnership when recommending any of the wealth management products and services available from companies in the Group, more details of which are set out on the Group’s website at https://www.sjp.co.uk/products.

Sources:

[1] Analysis of Future Pension Incomes 2025, Department of Work & Pensions, July 2025

[2] Retirement Living Standards, Pensions and Lifetime Savings Association, 2025. All figures quoted were developed by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA.

[3] National life tables – life expectancy in the UK: 2022 to 2024, Office for National Statistics, December 2025.

[4] Benefit and pension rates 2026 to 2027, Department of work & Pensions, February 2026.

[5] Tax on your private pension contributions: Annual allowance, HM Revenue & Customs, March 2026.