How long will my pension last in retirement?

Whether you’re planning on travelling the world, learning a new hobby or spending more time with friends and family, you need to feel confident that your retirement savings will go the distance.

How long your pension lasts in retirement will depend on several factors that are completely personal to you, including how much you’ve saved, your life expectancy and your desired retirement income. It will also depend on things like inflation and how well your investments perform.

A financial adviser can give you a clear picture of how long your savings are likely to last, but the following questions should help you get started.

How much have I saved so far?

The first step in understanding how long your pension is likely to last is to work out how much you’ve saved so far. This might seem obvious, but it’s possible you’ve accumulated several workplace pensions over your career, some of which you may have forgotten about. Ask your pension providers for an up-to-date valuation, and use the government’s free pension tracing service to track down any lost pensions.

Don’t forget the state pension, which currently pays £203.85 per week (around £10,600 a year) for those who qualify for the full rate¹. You might also have other sources of retirement income, such as ISAs and savings accounts. A financial adviser can review all your savings and investment pots to give you a true picture of your retirement savings.

What’s my life expectancy?

Latest figures from the Office for National Statistics show a 66-year-old woman has an average life expectancy of 87 years². However, they also have a one in four chance of living to 94 and a one in ten chance of living to 98. For a 66-year-old man, the average life expectancy is 85 years.

If you stop working at age 66, which is the current state pension age³, your savings may need to last for 20 or even 30 years in retirement.

How much retirement income do I need?

How much retirement income you need each year will depend on your lifestyle in retirement. Travelling the world, for example, is likely to cost significantly more than pottering around your garden.

The Pensions and Lifetime Savings Association (PLSA) has calculated that the average single person needs £37,300 a year after tax to fund a ‘comfortable’ retirement, while the average couple needs £54,500 a year after tax⁴. This would cover all your basic needs as well as some luxuries, such as three weeks in Europe each year, replacing your kitchen and bathroom every ten to 15 years, and replacing your car every five years.

Bear in mind that these are average figures. An adviser can help you add up your expected outgoings and then explain what level of retirement income this would translate into.

How long would a comfortable retirement income last?

Our analysis shows that if you retired at age 66 with a £500,000 pension and started withdrawing net income of £37,300 a year (£43,482 before tax), your pot could run out by age 79. This assumes the fund grows at an annual rate of 5% after fees and the income increases annually with inflation (assumed at 2% p.a.). If you retired with a £750,000 pension, your pot could last to age 89.

Remember, the state pension could boost your income by around £10,600 a year, perhaps enabling you to withdraw a lower amount from your personal pensions. If, for example, you started withdrawing net income of £26,000 a year (£33,000 before tax) from a £500,000 pension, your pot could last around six years longer to age 85 (based on the same assumptions as above). For a £750,000 pension, you could still have money left in your pot at age 100.

Another way of funding retirement is to buy an annuity. This pays a guaranteed income for life, no matter how long you live. A financial adviser can guide you through the pros and cons of annuities and income drawdown, so that you can make a fully informed decision on what’s right for you.

Next steps

Understanding how long your pension will last in retirement can provide clarity and peace of mind about your future. However, it is a complex calculation with many variables – and that’s why it’s important to get smart advice from someone who understands your individual circumstances.

An adviser can show how long your retirement savings are likely to last, explain the best way to access your pension in retirement, and check your money is invested in a way that suits your needs and goals.