Moneyweek: Is the 25x retirement rule still relevant?

The 25x rule is a rough guide but far from perfect. It assumes you’ll withdraw about 4% a year, markets will deliver steady returns, and your spending won’t change. In reality, spending often runs higher in early retirement, drops as we slow down, then climbs again with care. Big variables like inflation, care costs, and how long you live can swing the numbers considerably.

The Shepherds Friendly figure of £743k isn’t unrealistic as a ballpark, but it’s very “average household.” If you’re a higher earner with a bigger lifestyle, you’ll need more. If you downsize or keep expenses low, you may be fine with less.

The 25x rule is still a useful starting point, but it’s not a guarantee. A modern approach means adjusting withdrawals, blending income sources, and modelling the life you actually want to live.

These rules of thumb, are just that - a general guide. Everybody is different in terms of the other sources of income they can tap into during retirement. From final salary pensions, to rental income, to releasing equity from the main home.

It's important to also consider the likely pattern of expenditure in retirement - rarely is it a linear increase from start to finish. We see people generally spend more in early retirement as they make the most of the time and health they have, with a reduction in the middle as they settle into a slower pace of life after having ticked-off some of the bigger, more expensive pursuits, then gradually rising towards the end when care at home or in a home begins.

Keeping the buying power of the income throughout retirement is a big challenge, as £1 spent on day one might need to be £1.35 15 years' later to buy the same. That 35% increase is unlikely to come from leaving cash in the bank.

The 25x rule is sensationalist nonsense that ignores the State Pension and risks scaring savers witless.

Take a couple spending £30,000 a year from age 60. The 25x rule says they’d need £750,000. In reality, from age 68 they’d receive about £24,000 a year in State Pensions, leaving just £6,000 a year to cover. That needs roughly £190,000. Add another £192,000 to cover the eight years before pensions start, and the total comes to around £382,000 — almost half the scary figure quoted. Big headline numbers risk backfiring, as they can put people off saving altogether because "what's the point".