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4 unexpected reasons your retirement income could fall short, and what to do about it

Making assumptions about your retirement could be a mistake. Here are our top tips and tools to help you plan for the unexpected.

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.

Working out if you’ll have enough money to live off in retirement might not be as simple as you first thought.

If you don’t get the inheritance you expected, or if your pension doesn’t go as far as you thought it would, you could be left struggling to make ends meet.

We take a look at four things you might not have factored into your retirement planning, and the handy retirement calculators that could help you strengthen your plans.

This isn’t personal advice. If you're not sure what's right for you, get free impartial guidance from the government’s Pension Wise service, or you could get expert financial advice.

1 – your State Pension might kick in later

While it’s unlikely to be enough to live off on its own, the State Pension is certainly worth factoring into your plans if you qualify for it. The amount you’ll get will depend on your circumstances, but to give you an idea: the full new State Pension currently pays £179.60 a week. This amounts to £9,339 a year, and this is likely to increase in future years.

But the age at which you can claim your State Pension has been steadily increasing and is set to rise even further. The State Pension age rose to 66 last October, and is set to rise to 67 and then 68 over the next few decades. If this trend continues, workers in their 20s might not be eligible for their State Pension until their 70th birthday – or later.

If you don’t want to keep working until then, you’ll likely need money from your workplace and private pensions to replace your earnings in the meantime. You can normally access these pensions from age 55. This is set to increase in line with State Pension Age, so will be 57 from 2028 and may rise further still in future.

Try our pension calculator to get an idea of what they could pay and whether it’ll be enough.


2 – you might live longer than you expect

The average 65 year old woman will live to 86, while a 65 year old man will live to 84. The number of people aged 90 or over has also continued to grow.

Living a healthier, longer life is far from a bad thing. But it does mean your money will need to go further than you may have first thought. To avoid running out of cash, you should set a realistic timeframe of how long your pension needs to last. To help, you could try our longevity calculator.


3 – you might not get the inheritance you expect

Our research* shows that almost one in five people expect a significant inheritance. And of those who are expecting or have received an inheritance, just over two in five say they’ll need it to help fund their retirement.

But it’s never safe to rely on an inheritance. People can live longer than expected, spend more than they planned, need to pay for care, or simply change their mind.

A smart approach is to make sure your essential spending (like bills and food) is covered regardless. The Pensions and Lifetime Savings Association suggest single retirees need around £10,000 a year and couples £15,000 to cover their basic needs and have a little left over. If you do get an inheritance, it could help towards the extras that would make your retirement more comfortable.

If your pension savings are falling short without an inheritance, you might want to think about working longer or working part-time in retirement. You could find semi-retirement gives you a good balance of work and freedom, as well as the extra cash.

Download our guide to semi-retirement for top tips on how you could make it work.


*HL survey of 2000 respondents conducted April 2021.

4 – inflation could reduce the buying power of your pension

Inflation’s a measure of how much prices have gone up over time. It’s the rate cash becomes less valuable – £1 today will get you further than £1 in future.

You could be in retirement for 20 or even 30 years. So you’ll likely need more money to keep up the same standard of living as things get more expensive over time.

If you’re thinking of buying an annuity with your pension to get a guaranteed income, one option is to build in an annual increase at the outset. You can usually ask for your income to increase, either by a fixed percentage or in line with inflation.

Having an income that increases over time means the amount of income you’ll get at the start will be lower than if you’d chosen to receive an income that stays the same. You can’t normally change or cancel your annuity once it’s set up, so you need to weigh up the benefits and drawbacks of your options before making your final decision.

The higher risk, flexible retirement options, like drawdown or taking lump sums, allow you to stay invested. Your returns could beat inflation if your investments perform well. But remember, the value of investments can fall, and income isn’t secure.

To get an idea of the amount of growth your pension savings would have needed to keep up with historic inflation, you can use our inflation calculator. Keep in mind though that rates of inflation might be different in the future.


How to feel more confident about your retirement

Read our guide for ten practical tips to help you get the most of your pension and start retirement on your terms.


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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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