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3 steps to making your retirement income last longer

Find out about maximising your income in retirement to give you the lifestyle you want, and three steps you can take to help make it happen.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Despite early planning, lots of retirees might find their pension pots run out sooner than expected.

This is because the cost of a comfortable retirement is rising. And we’re living longer.

Here are three steps to help you make your income go further.

Although this article can provide you with helpful tips, it’s not personal advice. If you’re not sure if something is right for you, ask for financial advice. An adviser will be be able to help you understand what’s right for your individual circumstances.

Knowing how much income you’ll need throughout retirement

There’s a one in four chance that women aged 55 will live to 94. Similarly, men of the same age have a one in four chance of living to 92.

If we’re living longer, we might spend some of this time in ill-health and could need some form of care. Although social care is available, it’s often more costly than anticipated as state funding might not cover all expenses.

This could also impact you if you’re in the early stages of retirement. Elderly parents who haven’t saved enough themselves could need some financial support when it comes to long-term care, however that looks.

But planning ahead can reduce the chances of your income running out.

Firstly, make sure you’ve got an emergency cash savings pot. If you’re retired, you should hold one to three years’ worth of essential expenses in an account that’s easy to access.

Holding this much when you’re retired is a good idea, because if you need to dip into your emergency pot it could be harder to replenish.

Secondly, don’t fall into the trap of dividing your pension pot by your estimated life expectancy. If you do, you’ll be ignoring the effects of turbulent markets, and the potential cost of care on your overall savings pot.

Lastly, don’t ignore the rising costs of living.

Over the last ten years, inflation has increased the cost of goods and services by about 30%. So, depending on the type of retirement you’re planning, your pension income might need to increase in line with, or outpace inflation.

What you do with your pension is an important decision. You should understand all your options and check that the option you choose is right for your circumstances.

If you’re at all unsure, get free and impartial guidance from the government’s Pension Wise service and, if you still want more help, get personal advice.

Use our drawdown calculator to see how long your income might last for

1. Maximise your retirement savings

It might seem obvious, but retirement isn’t inflexible, and it isn’t one-size-fits-all.

You can mix and match your retirement income to help you live the lifestyle you want in retirement.

But don’t rely on unsecure income alone to fund it.

You should factor in that whatever amount of income you generate from your pension – you’ll need to cover your essential spending first. With a pension that’s invested, there’s no guarantee that you’ll be able to take the income you want when you want.

If you have 35 qualifying years of National Insurance contributions, you’re likely to be able to claim the full new State Pension. This will guarantee you an income of at least £9,339 a year from your state pension age.

If this doesn’t cover all your essential bills, you could consider using some of your pension to purchase a form of secure income, like an annuity.

Annuities will normally pay you a regular income for the rest of your life. There’s a chance you’ll qualify for an enhanced annuity if you meet certain criteria – like if you smoke, drink alcohol or have a health condition like diabetes or high blood pressure.

Once set up, an annuity can’t usually be changed so it’s important to consider your options carefully.

You should also keep in mind that how much annuity income you get depends on the size of your pension, your age and the options you choose. It also depends on the annuity rates available at the time (which could go up or down in the future). Different providers will offer different rates so make sure you shop around to find the best deal for you.

Find out more about annuities

2. Taking income from your investments

If you’re relying on income from your investments to make up for your income that’s post-essential expenses and general living costs, you might find your investment strategy takes a little more finessing.

Depending on when you need your income, it’s a good idea to make sure your investments pay you a regular income that’s aligned with what you’ll need in retirement. Whether that’s monthly, quarterly or yearly is up to you.

Income from investments isn’t guaranteed and it can fall as well as rise in value. Income you’ve received in the past also isn’t a reliable guide to what you’ll get in the future. So don’t rely on the quoted yield figure to paint a full picture.

3. Make your retirement income last

You don’t need to be excessively frugal to enjoy the retirement lifestyle you want.

If you’ve spent years planning for it, make sure you’re playing an active role in monitoring your investments and your retirement income. This will give you the best chance at maintaining the living standards you want throughout your lifetime.

But if taking a more hands-off approach is more appealing, you could think about getting help from the experts.

A financial adviser can often be the gateway between the retirement you have, and the retirement you want. They’ll help you to maximise your income well into the future and make recommendations based on your individual goals.

Explore retirement advice

Financial advice from us

If you’d like to speak to an expert, our advisory helpdesk is the first step to getting financial advice.

They don’t give you personalised advice themselves, but they’ll help you decide whether advice is right for you and that you’re comfortable with the charges involved.

If you decide you want advice, they’ll put you in touch with an adviser within two working days.

To talk to us about taking advice, book your call today.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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