How long will my pension last?

The default retirement age no longer exists, so technically, you could work for as long as you wanted. Of course, in reality, most of us look forward to the day we can officially retire, but what kind of retirement will you be able to enjoy?

While none of us can predict the future, we look at how long your pension might last, and how much money you might need for the lifestyle you want in retirement.

• How much do you need for the retirement you want?
• When can I retire?
• How long can I expect my pension to last?
• What are the different ways of taking your pension?
• What do I need to do to make my pension last?
• FAQs

How much do you need for the retirement you want?

The amount of money you need and how long it might last is directly linked to your expectations for retirement. Naturally, the more lavish your lifestyle, the more you’ll need. You’ll also need to remember to factor in inflation and the increase in overall living costs.

Research by Loughborough University, as part of their Retirement Living Standards initiative, provides valuable insight into how much you might need in retirement based on three different comfort levels.

For a minimum standard of retirement living, the research says you’ll need roughly £14,400 each year (the State Pension provides £10,600 per year). If you’re a couple, you’ll need £22,400. This will give you enough money to cover all your essential needs, plus some extras such as a week-long UK holiday and the cash to redecorate one room in your home a year. However, it doesn’t include covering the cost of owning or maintaining a car.

If you’d prefer a moderate standard of retirement living, you’ll need roughly £31,300 per year if you’re single or £43,100 if you’re a couple. As well as having more money for the essentials, extras you’ll be able to afford include being able to have a car and replace it every ten years and a two-week European holiday.

To live comfortably in retirement, you’ll need £43,100 if you’re single or £59,000 per year if you’re a couple. This will provide you with considerably more financial freedom, giving you a significant budget for essentials (up to £238 per week on food and £1,300 per person for clothes). You’ll also be able to afford two cars, replace them every five years, and have a three-week European holiday. You could even cover the cost of a new bathroom and kitchen every 10 to 15 years.

When can I retire?

The default retirement age of 65 no longer exists, so depending on what you want to do in retirement and what assets, investments, and pensions you have, you could work for as long as you want to. Employers cannot force you to retire unless they have very good reasons, for example, if the job needs particular physical abilities.

Some public service jobs also still have a compulsory retirement age because of the nature of the role. For example, police officers must retire at age 60 or 65 depending on the rank they hold.

When can I get my State Pension?

You can check when you can start claiming your State Pension at GOV.UK. Currently, if you were born on or after 6 April 1978, the earliest age you can claim the State Pension is expected to be 68 years. This is subject to change and could increase in the future.

When can I access a personal pension?

Personal pensions are also known as defined contribution pensions. These may also be offered by your employer as a workplace pension. You should be able to access these funds from age 55, but this is expected to rise to 58 over time. If you have any final salary pensions, known as defined benefit pensions, these will have a normal retirement date (NRD).

Who can get the State Pension?

If you’ve paid National Insurance for at least ten years, you should be eligible for the State Pension. Those ten years are in total and don’t need to be in a row, so if you’ve taken time out of paid employment and cared for your family, you could still be entitled to a State Pension.

If you’re entitled to the maximum amount of State Pension, you’ll receive £203.85 per week*. To ensure that you receive a full State Pension, it is worth obtaining a statement to see how many credits you have. You’ll receive a State Pension once you have 10 years’ worth of credits, but you’ll need 35 years for a full State Pension. Credits are earnt through employment (although you need to be paying National Insurance contributions), raising children, or as a grandparent assisting with grandchildren.

How long can I expect my pension to last?

How long your pension might last depends on a number of factors, including:

• how you envisage retirement life;
• your pension(s), savings, investments, and assets;
• your life expectancy;
• rising costs through inflation.

It can be tricky to pinpoint how long it might last simply because of many variables.

For a comprehensive assessment of what you can expect your finances to look like in retirement, you can enlist the help of an independent financial advisor (IFA). At Alan Boswell Group, our advisers can help you to clarify your current financial situation, provide a cashflow forecast, and formulate a plan to give you the retirement lifestyle you want.

If you want to get a better idea of how long your pension might last before speaking to an IFA, consider these key areas:

How much you’ve already saved and what income streams you have

Your State Pension is in addition to any other private or workplace pension you may have. If you know you’ve previously had a private pension but cannot remember who with, you can use the pension tracker at GOV.UK.

If you’ve got savings, investments, or other assets, don’t forget to include these in your considerations. You can roughly gauge investment returns based on previous years (remember that this will only give you an indication).

Also remember to include other income sources, for example, if you’re a landlord or receive dividends.

Your life expectancy

The average life expectancy for men is 79 years and 83 years for women. But the broader picture shows that someone who is 40 years old now is likely to live until they are 84 (for men) or 87 (for women). There’s also a one in four chance that you could live to at least 94 years old and a one in ten chance of reaching 98 if you’re a man or 100 years if you’re a woman.

Based on that, it’s highly likely that your pension will need to last at least 16 years (if you retired at 68 years old).

To better understand your life expectancy, you can use the ONS’ interactive calculator.

What are the different ways of taking your pension?

If you have a personal pension, you’ll be able to access your money in a number of ways (this does not apply to the State Pension). Your options include:

Taking your pension fund in one go

You can choose to withdraw your entire personal pension fund. Only 25% of the total value is tax-free and you’ll pay income tax on the rest.

For example, if you have £50,000 in your pension, you can withdraw £12,500 tax-free. The remaining £37,500 will be taxed.

Taking your pension in smaller sums

Instead of taking your pension in one go, you can take it in smaller lump sums. However, 25% of each withdrawal is tax-free; income tax will be charged on the other 75%.

For example, if you take out £1,500 every month, £1,125 of this will be taxed.

Buying an annuity

An annuity is an amount of money you’ll receive every year for the rest of your life. You can buy annuities from insurance companies using the money in your pension. You are able to take up to 25% of your pension fund tax-free, but any annuity income received will be subject to tax.

Annuities vary by provider so if this is something you’re interested in, it’s important to take the time to research what’s available.

Pension drawdown

This allows your pension fund to be left invested and an income to be received from the funds whenever it is needed. How long the fund will last will depend on where the money is invested, how much income is taken and how long you live. You are able to take up to 25% of your pension fund tax-free, but anything else received will be subject to tax.

Combining approaches

You may decide to use more than one option at different stages of your retirement.

Taking advice from an individual financial adviser will help you to decide which combination of options will allow your money to last as long as it needs to.

What do I need to do to make my pension last?

Making your pension last is a balancing act between ensuring you have enough to live on for the rest of your life and making sure you don’t live so frugally that you don’t enjoy your retirement.

In reality, making your pension fund last as long as possible comes down to your desired lifestyle, the income options you will have in retirement, and your age. With that in mind, there can never be a one-size-fits-all checklist of actions, but retirement planning with an IFA can help.

Our independent financial advisers will take you through your options, enabling you to navigate the tax implications and make the most of your hard-earned pension. To find out more, speak to an expert on 01603 967967. We’ll discuss your current circumstances and what you hope for retirement and create a tailored plan for your financial future.

FAQs

How long will a 300k pension last?

How long your pension might last depends on multiple factors, including how much money you have saved, your income streams and investments, your lifestyle and your life expectancy.

Based on research, if you wanted the financial freedom to live comfortably, a single person would need around £43,100 per year. With a pension fund of £300,000, your money would last approximately seven years. There are options to make this money go further depending on how you draw down your pension and whether you invest during retirement.

What happens if I run out of money in retirement?

If you’ve made National Insurance contributions, you are entitled to a State Pension until you pass away.

An IFA can help you make the most of your pension through financial planning and forecasting to lower the risk of using up your pension too early.

What is the average pension income in the UK?

Figures from the Department for Work and Pensions show that the average pension income for a couple was £515 per week (£26,780 per year before tax). For single people, the average was £239 per week (£12,428 per year before tax).

What factors will impact how long my pension will last?

Multiple factors affect how long your pension might last. For example, how much have you saved, what investments or income streams do you have, and what is your lifestyle and life expectancy?

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Please note, the value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future. The value of tax benefits depends on your individual circumstances and the laws concerning these can change.

None of the information in this article represents a recommendation about the income you may receive in retirement.

*Correct as of 13/12/23 https://www.gov.uk/new-state-pension/what-youll-get