How much would an ISA need to bridge the gap between the State Pension and £38,584 a year?
Andrew Mackie asks: is the State Pension really enough — and what would it take to bridge the gap to a higher retirement income?
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Andrew Mackie
Published 2 May
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The State Pension currently pays just over £12,547 a year. This is well short of the £38,584 average UK salary based on the latest ONS data.
That gap is exactly why I’ve been thinking about whether an ISA could realistically bridge the difference and turn a basic retirement income into something far more comfortable.
But what would it actually take to bridge that gap in practice?
Asking the right question
Most investors aiming to replace a full salary would likely focus on bridging the £26,037 annual gap in retirement income.
But the challenge isn’t just reaching a target number — it’s understanding both sides of the equation: accumulation and drawdown.
Retirement isn’t just about preserving a pot untouched. It’s about drawing an income that keeps pace with rising costs, without running the portfolio down too quickly. That’s why portfolio construction matters across an investor’s lifetime.
Crunching the numbers
Based on a conservative 4% annual return in retirement and 3% inflation, the model suggests the need for a portfolio of around £578,388 at age 65.
This would be sufficient to sustain withdrawals of £26,037 a year through to age 90.
That’s what the chart below is showing.
The blue line shows the portfolio value over time as withdrawals reduce the balance. In reality, outcomes would be more volatile than this smooth path suggests, as returns and inflation rarely move in straight lines.
What stands out is that even as withdrawals reduce the portfolio, it continues to generate returns throughout retirement. This is reflected in the gold line on the chart, which shows how ongoing compounding keeps the curve from flattening too quickly. It’s a reminder that maintaining a healthy portfolio in retirement matters just as much as during accumulation.
Chart generated by author
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