Retirees on their shifting pension costs – and what you should consider

You might well allow yourself a satisfied grin if you’ve successfully saved into your pension over the decades, but when we talk about a ‘retirement smile’, we’re discussing something very different.

Instead, this is an attempt to describe the shape of your withdrawals from your pension after you enter retirement. The idea being that you might spend more at the start when you are still active, with outlays for travel, eating out, hobbies and other activities. Then you enter a phase where your spending drops as you slow down and stay closer to home. Before outgoings go up at the back end because of the potential need to pay for care and medical treatment.

Life can be unpredictable and not everyone will fit this pattern, but this broad-brush guide can still be useful when planning your own retirement.

What are retirees spending on?

Research commissioned by AJ Bell* shows it’s not just discretionary spending which might make greater demands on your pension pot at the start of retirement.

One in five retirees surveyed have used or are using their pension to cover mortgage or rental payments. This is significant as Pensions UK Retirement Living Standards, which look to paint a picture of the amounts needed to achieve different lifestyles, assume you own your home outright. For 61% of the respondents who are in rented accommodation rather than owning their property, the most popular use of their first pension payment was living costs.

Nearly three quarters of respondents do own their homes outright but the 5% who own with a mortgage will need to consider these payments, at least in the early stages of retirement.

Over a third of all retirees surveyed spend more than half of their regular pension income on household bills. While exactly a third spend more than 21% of their income on discretionary purchases.

Inflation is inevitably having an impact on people’s ability to achieve the retirement they want. Nearly half of all retirees feel changes in service and household maintenance or repair costs have impacted how long their savings will last (45%). Meanwhile, 59% feel increases in costs to heat or cool their home have affected pension savings.

Why you should make a plan

All of this makes taking some time to plan and having as much information as possible to allow for informed decisions crucial. If you’re still in the process of building up your retirement savings, a pensions calculator can help you work out what sort of income is achievable based on your existing pot and planned future contributions.

The good news is the pensions freedoms which have been in place for the last 10 years have provided the necessary flexibility to respond to fluctuating spending needs. Whereas the traditionally preferred route of purchasing an annuity would have given you a guaranteed income for life at a fixed level throughout your retirement, entering drawdown lets you adjust your withdrawals from a pension based on your current requirements.

It is important to make sure your pension will last as long as you need it too, but life is for living. Understanding that there’s a reasonable chance you might have a more fallow period of spending in your middle retirement years might give you some confidence to splash out on something which really matters to you while you’re still able to enjoy it.

• Read: How much do you need for a comfortable retirement?

Equally being aware that you could need funds at the other end to meet the expenses which can come with old age might give you pause on more extravagant or unnecessary purchases. While the change which will see pensions form part of estates for inheritance tax purposes from April 2027 has shifted the calculus around using a pension to pass on wealth to your offspring.

People already have confidence in their ability to do this stuff

Returning to the AJ Bell research and it’s encouraging to see most of the retirees surveyed feel they are good at this stuff, unsurprising given their decades of experience in making the bills add up.

 When asked to assess their own budgeting in retirement, more than half (54%) feel they prepare well for surprises and unexpected costs. Similarly, 77% of respondents state that the way they have used their pension in retirement has been as they expected. In fact, more said they had withdrawn smaller rather than greater sums than planned.

*Opinium surveyed 1,000 retirees in the UK on behalf of AJ Bell between 26 August and 1 September 2026.