How long will my pension last?

The number of people living to 100 in England and Wales has hit a record high. It’s risen from just 110 people to nearly 14,000 over the past 100 years.

A 66-year-old male (State Pension age today) is now expected to live until 85, and a female to 87.

As a nation, we’re living longer and healthier lives and this means it’s getting more and more likely that your pension could need to last 30 years or longer.

For anyone in retirement, it’s essential to be realistic about your life expectancy. It can help you to avoid running out of money later on and get a better steer on what sustainable pension withdrawals look like.

Here’s what you need to consider about how long your pension might need to last for.

This article isn’t personal advice, if you’re not sure what’s right for you, please ask for advice.

Already drawing down your pension?

If you’re already in drawdown, it’s important you have a strategy for taking an income.

You could consider just taking the income generated by your investments (dividends from shares or interest paid from bonds). This is also known as withdrawing the natural income.

This can be more sustainable as your pension has more potential to grow in value and the chance to benefit from any market rises. It also helps to reduce the risk of withdrawing too much too soon.

Remember though, all investments, including the income they produce, can rise and fall in value. Your income won’t be guaranteed and you could get back less than you invest.

If you think taking the natural income won’t give you enough income, you could consider selling your investments to generate cash for your withdrawals. This is known as drawing from capital.

This approach can work well during market rises. But if stock markets fall, you could be forced to sell your investments at lower prices and your pension pot could quickly fall in value. That’s why it’s important to regularly review your investments when in drawdown.

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Managing your pension withdrawals

If you haven’t already taken money from your pension, but plan to take a flexible payment soon (through drawdown or as a lump sum), it can be a good idea to request an illustration. It will show you how your withdrawals could affect how long your pension lasts, and how sustainable they might, or might not, be.

What you do with your pension is an important decision. You should check you're making the right decision for your circumstances and that you understand your options and the risks. The government's free and impartial Pension Wise service can help you. We can also offer you financial advice.

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A secure income for life

Anyone who doesn’t want to worry about the stock market ups and downs in retirement should consider buying an annuity.

Annuities give you a guaranteed income for the rest of your life. It doesn’t matter how long you live, or what happens in the stock market.

The amount of income you get will depend on the value of your pension, your circumstances and the options you choose. You could also get a higher income by confirming your health and lifestyle details when you apply. Once set up, an annuity can’t be changed so it’s important you consider your options carefully.

Even if you’ve decided against a guaranteed income in the past, it’s not a choice for life. You can use some, or all, of the money in your drawdown account to buy an annuity at any time.

If you don’t choose to take an annuity straight away, it’s worth reconsidering your position throughout your retirement.

With every year you get older, and with the impact that could have on your health, it’s likely you’ll qualify for a higher annuity income.

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