Retirement planning 2026: calculate your retirement income gap and target capital

Recent reforms, rising living costs and less predictable working lives have made planning more difficult. Anyone relying solely on the feeling that “it will probably be enough” could face an unpleasant surprise. What matters is putting a clear figure on your future retirement income gap – in euros rather than intuition.

Why substantially larger retirement savings will be needed in 2026

The statutory pension replaces an ever-smaller share of final earnings. Specialists refer to the pension replacement rate, also known as the thousand-rate: what percentage of your final gross salary will ultimately arrive in your account as a pension?

For future generations, this figure is often only between 60 and 65 per cent. Although the average of around 74 per cent may initially seem reassuring, it conceals major differences:

• Employees without management roles: around 75 per cent of their final salary
• Civil servants: approximately 70 per cent
• Many senior managers: sometimes only around 50 per cent
• Some self-employed people, tradespeople or retailers: in some cases only about 40 per cent

So, people earning well today may ultimately have only half – or even less – of their former net income available. For many households, that means nearly half of the money previously used for housing, shopping and leisure will be missing.

People are also living longer, and a retirement lasting 25 to 30 years is no longer unusual. By then, mortgages are often repaid and children have left home. Yet other costs rise at the same time: healthcare, possible care needs, adaptations to the home – as well as the travel and activities saved up for over many years.

Without clearly planned additional capital, even an unexpected personal setback can destabilise a carefully balanced retirement budget.

The most important pre-retirement step: calculate your personal target capital

The key tool is not a new financial product, but a sheet of paper or a simple spreadsheet. Knowing your target capital allows you to manage your retirement actively rather than simply hoping for the best.

Step 1: Establish your expected pension income

Start by asking: how much pension income are you likely to receive? This includes:

• Entitlements from the statutory pension scheme
• Workplace pensions
• Professional pension schemes, for example for doctors, solicitors and architects
• Private pension insurance policies or existing drawdown plans

Regular pension statements and account statements provide an initial overview. Anyone with gaps in their employment record should check early on whether additional contributions or corrections would be worthwhile.

Step 2: Draw up a realistic retirement budget

The second step is more candid than many people would like: what does a life that genuinely feels “good” cost – not lavish, but comfortable? Useful categories include:

• Rent or household running costs and maintenance
• Energy, water, internet and mobile phone costs
• Food and household spending
• Insurance and taxes
• Healthcare: medication, co-payments, aids and dental treatment
• Financial support for children or grandchildren
• Travel, hobbies, culture and sport

These items produce a monthly target amount. The difference between this and expected pension income is the actual income gap that must be covered from your own savings.

Step 3: Turn the monthly figure into target capital

This is where a vague concern becomes a precise number. The calculation is straightforward:

Target capital = (monthly income gap) x 12 x (planned years in retirement)

For example, someone who needs €3,000 a month for a comfortable life but expects pension income of only €2,000 has a gap of €1,000.

• Monthly gap: €1,000
• Annual gap: €12,000
• Planned retirement duration: 30 years

This results in target capital of €360,000. The sum is intended to be used gradually throughout retirement – the actual requirement may vary slightly depending on investment strategy, inflation and interest rates, but the overall framework is clear.

How much should be saved by each age?

One broad rule of thumb used in financial planning is based on income:

• by age 30: assets worth roughly one year’s gross salary
• by age 40: around three times annual salary
• by age 50: about six times annual salary
• by age 65: approximately eight times annual salary

Anyone significantly below these levels will need to increase their savings rate or take a critical look at their intended retirement date. Those above them have greater flexibility and may, for example, reduce their workload sooner or adopt a more defensive investment strategy.

What monthly saving amount can realistically achieve the target?

A common guideline is to put around 15 per cent of gross income towards retirement. This means all elements outside compulsory statutory contributions, including workplace, private and other forms of saving.

Even more important than the precise amount is when you begin. Starting early beats making large contributions shortly before the end.

Someone starting late with very limited reserves may struggle to manage 15 per cent or more. A phased plan can help: begin with five per cent, raise the proportion by one percentage point each year, and automatically direct half of every pay rise into retirement provision.

Where your money can work for you

A range of building blocks can be combined to build wealth:

Building block	Strengths	What to consider
Private pension or retirement contracts	Tax advantages, predictable payments	Charges, flexibility, term
Insurance-based savings plans	A combination of security and return potential	Fee structure, investment focus
Share or ETF savings plans	Strong long-term potential through broad diversification	Market fluctuations, investment horizon of at least 10–15 years
Rental property	Rental income, a tangible asset, and some inflation protection	Financing, void periods, maintenance, location
Easy-access savings and emergency reserves	Quickly available, limited fluctuations	Returns are usually low; suitable only for short-term purposes

The mix is decisive: one portion should remain secure and readily accessible, while another can fluctuate over the long term to pursue returns. As retirement approaches, the secure allocation will usually become larger.

Emergency savings and flexibility are part of the strategy

Alongside retirement assets themselves, maintain an emergency fund in an easily accessible account. Three to six months’ expenditure is ideal. This money can cover car repairs, a replacement washing machine or suddenly necessary dental treatment without having to draw on long-term capital.

It is also sensible not to treat the retirement date as fixed. If your own gap remains large, there are several levers available:

• work longer or continue in part-time employment
• increase statutory pension entitlements by claiming later
• deliberately plan for lower spending in retirement
• adjust your housing situation, for instance by moving to a smaller home or letting part of your property

What many people underestimate when planning retirement

Three issues are often overlooked in retirement planning:

• Inflation: €3,000 today will not mean the same in 20 years’ time. When calculating target capital, build in a buffer or plan conservatively.
• Healthcare costs: Out-of-pocket spending tends to increase in later life. High-quality dental work, glasses, hearing aids or rehabilitation can quickly cost four- or five-figure sums.
• Psychology: Many people underestimate how difficult it can be to start spending capital saved for retirement. A clear drawdown plan helps you give yourself permission to use the money.

It can be helpful to divide target capital into several “pots”: one for essential spending, one for healthcare and home adaptations, and one for travel and extras. Planning this way helps preserve oversight and means an unexpected event does not force you to abandon every wish at once.

Starting early, reviewing your approach regularly and knowing your target figure removes much of the fear around retirement. The anxiety of uncertainty then becomes a concrete task that can be tackled step by step.