How long will my pension last in retirement?

It takes time and hard work to build up a pension pot, but being savvy with your money doesn’t stop once you retire. It’s important to manage your withdrawals carefully as you want to ensure the pot lasts for as long as you do.

Pension savers with ‘defined contribution’ schemes such as SIPPs have total flexibility over how they access their hard-earned retirement pot from age 55 (rising to age 57 in 2028), with up to a quarter available tax-free and the rest taxed in the same way as income.

You can choose to keep your money invested and take as much or little as you want through ‘drawdown’, enabling you to tailor a retirement income plan to suit your needs.

If you’re planning to go down this road, you need to think carefully about when you start taking an income from your pension and how much you choose to withdraw each year. So, let’s get into it.

What do you need to consider when taking your pension?

Figuring out just how much to withdraw depends on several factors, including:

• When you first start taking an income
• How long you might live
• Your overall wealth
• Potential investment returns

Unlike buying an annuity – a guaranteed income for life paid out by an insurance company – drawdown requires you to stay engaged with your pension in retirement, reviewing your withdrawals and strategy at least annually to make sure you’re on track.

If your investments deliver better returns than expected, you might be able to take a bit more income from your fund. Equally, if your investments take a big dip, particularly in the early years of retirement, you might need to lower your income to remain on a sustainable path.

Try our free pension calculator to get a more visual projection of how much you might receive in retirement.

Building a pension withdrawal plan

With the table set, let’s consider what a sustainable drawdown plan could look like. According to the latest available official data, the median private pension wealth of someone aged 55-64 is £137,800, while for those aged 65-74, the figure is £145,900.

Is it better to access your pension earlier or later?

Accessing your pension even a few years earlier can also have a big impact on the sustainability of your withdrawals. If the person in the above example had instead accessed a £140,000 pot at age 60 and needed it to last until age 86, the first withdrawal would need to be scaled back to around £6,800 (again assuming 4% investment growth and their income rises by 2% a year).

If, on the other hand, they accessed a £140,000 pension for the first time at age 70 under the same assumptions, their starting income could increase to around £10,000.

All of which emphasises the importance of taking a considered decision about accessing your pension when the time comes and reviewing your strategy regularly, considering not just how much money you need today but also in the future.

There’s no hard-and-fast rule when it comes to drawdown – each person will take a different approach depending on their needs and circumstances. If you aren’t sure about how to do this, it’s worth considering speaking to a regulated financial adviser. Alternatively, the government-backed MoneyHelper website is a useful resource for information about your retirement options, including drawdown.

Read more about retiring early