How to make your money last and maintain your
lifestyle throughout this new chapter
Retirement marks the start of a new chapter, whether that means travelling more, spending quality time with family, pursuing long-held interests or simply enjoying greater freedom in how you spend your time. After years of working and saving, the focus shifts from building your pension pot to making it work for you.
But turning those savings into a reliable and sustainable income requires careful planning. With several options available, understanding how each works, the benefits it offers and the risks involved can help you make informed decisions, maintain your lifestyle and give your money the best chance of lasting throughout retirement.
Bring your finances together
Start by reviewing your finances as a whole, rather than focusing solely on your pension pot. Your income may come from the State Pension, workplace and personal pensions, Individual Savings Accounts (ISAs), investments, cash savings or rental income. You may also receive an inheritance or other lump sum in the future.
Consider how much you will need to cover essential costs, such as housing, food and household bills, as well as discretionary spending on holidays and hobbies. Remember that retirement can last 30 years or more, so your plans should account for inflation, unexpected expenses and changing circumstances.
Choose how to access your pension
One option is to purchase an annuity, which provides a guaranteed income for life or for a specified period, depending on the product. This can offer reassurance that regular payments will continue, although flexibility is generally limited once the annuity is purchased. The income available depends on factors such as your age, health and prevailing annuity rates.
Alternatively, income drawdown lets you keep your pension invested while withdrawing funds as needed. This offers flexibility and the potential for investment growth, but your income is not guaranteed and your fund can fall in value. Withdrawing too much, particularly during periods of poor investment performance, could leave you with insufficient funds later in retirement.
Make your money work harder
You may also be able to take a tax-free lump sum from your pension, subject to the applicable allowances and your individual circumstances. Most people have a tax-free lump sum allowance of £268,275. They can normally take up to 25% of their pension benefits tax-free, provided this does not exceed their available allowance. Any withdrawals above the available tax-free allowance may be subject to Income Tax.
There is no need to rely on a single approach. Combining a guaranteed income from the State Pension or an annuity with flexible withdrawals from investments can help balance financial security with the freedom to adjust your spending. The right mix will depend on your circumstances, attitude to investment risk and long-term priorities.
Plan for the years ahead
A retirement cashflow forecast will help you estimate future income and expenditure, test different scenarios and understand how inflation, tax changes or market fluctuations could affect your finances. It’s important to review your plans regularly to ensure they continue to reflect your needs.
This article does not constitute tax, legal or financial advice and should not be relied upon as such. For guidance, seek professional advice. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028, unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, and you may receive back less than you invest, which can affect the level of pension benefits available. Cashflow and tax planning are not regulated by the Financial Conduct Authority. Annuities are long-term, complex financial products that may not be suitable for all investors. All investments carry risk, and annuities are no exception. The performance of an annuity is not guaranteed and may be affected by market conditions and other factors. It is essential to carefully consider your financial situation, investment objectives, and the product’s fees and restrictions before purchasing an annuity.