A pension pot can look reassuring until you turn it into decades of income. Here is how to test your retirement plan against time, tax and bad markets.
You have checked your pension balance. It looks respectable. Then comes the less enjoyable question: how many years must it pay for?
Retirement is not one long holiday with a known checkout date. If you plan to draw money from a pension pot, living longer is good news for you and a tougher assignment for the money.
Start with a date, not a pot size. The Office for National Statistics’ UK life tables for 2022 to 2024 put average remaining life expectancy for a man aged 65 at 18.7 years. That takes him to nearly 84. It is an average, not an appointment: plenty of men will live longer.
Those figures use the death rates observed in that period, rather than predicting exactly how long someone retiring in the future will live. For your own plan, test what happens if you reach 90 or 95. You are not betting that you will; you are checking whether the bills still get paid if you do.
There is also a gap that catches early retirees. The State Pension age is rising from 66 to 67 between 2026 and 2028. People born from 6 March 1961 generally reach it at 67 under the current timetable; earlier birthdays in the transition have different ages. Check your exact date rather than assuming your 66th birthday brings a payment.
If you stop work at 60 and your State Pension starts at 67, that is seven years to fund before it arrives. At £2,000 a month, that is £168,000 of spending before allowing for other income, tax or inflation. Suddenly the leaving-work date matters as much as the size of the pension.
First separate income that is expected to continue for life from money you can run down. A defined benefit pension, if you have one, promises an income under its scheme rules. A defined contribution pension is a pot: you must decide how to use it. ISAs and other savings belong in the picture too.
Get your personal State Pension forecast on GOV.UK. The full new State Pension is £241.30 a week in the 2026–27 tax year, or £12,547.60 over 52 weeks. Your amount can differ because of your National Insurance record, including periods when you were contracted out. The forecast is more useful than the headline rate, and future rates will change.
Now write down what retirement will cost each year. Include housing, food, bills and transport before holidays and helping adult children. Allow for costs that may not stay steady: replacing a car, maintaining a home or paying for help later in life. MoneyHelper’s retirement budget planner can help you catch the expenses that vanish from memory the moment you open a spreadsheet.
Suppose your spending target is £24,000 a year and, purely for this illustration, your State Pension pays the full 2026–27 rate for a whole year. The gap is £11,452.40 before tax. If you fill that gap from a £300,000 pot, you are taking about 3.8% of its starting value in year one. That is a calculation, not a safe withdrawal rate.
A pension balance is not an income. The missing number is how many years you need it to cover.
For a blunter illustration, £300,000 divided by £15,000 a year lasts 20 years if there is no growth, no inflation, no charges and no tax. Real life will decline to meet those conditions. Your withdrawals may need to rise with prices, investments may fall, and fees continue even when markets are having a sulk.
With pension drawdown, the money you have not withdrawn remains invested. You can vary what you take, but the income is not guaranteed. Taking a fixed £15,000 after a fall hurts more than taking it after a rise: you must sell a larger share of a smaller pot, leaving less invested to recover. A plan that works on average returns can still struggle if poor returns arrive early.
Test three versions of your budget: spending as planned, spending more because prices rise, and a bad first few years for investments. Ask what you would cut, which withdrawals you could delay and which bills you could not. Review the plan regularly; the amount you could afford to take at 65 may not be sensible at 75.
Drawdown is not the only option. A lifetime annuity converts some or all of a defined contribution pot into guaranteed income for life. That removes the risk of that income running out, though you generally cannot reverse the purchase after the cooling-off period. A level annuity usually starts higher than one designed to increase, but its buying power can shrink. Adding an income for a surviving partner usually reduces the starting payment. You can also use different approaches for different parts of a pot.
Tax changes the arithmetic. In 2026–27, the standard Personal Allowance is £12,570 across the UK. The State Pension is taxable, although tax is not deducted before it reaches you; taxable pension withdrawals and other income can take you over the allowance. Income Tax bands on pension income differ in Scotland from those in England, Wales and Northern Ireland, so a withdrawal that looks neat on a UK-wide example may produce a different bill north of the border.
Before choosing withdrawals, collect the figures: every pension statement, any defined benefit income, savings, debts, your likely retirement date and your State Pension forecast. Put them beside a realistic spending budget. MoneyHelper has a pension calculator and a drawdown calculator to help you test different amounts, rather than treating one projection as a promise.
Think carefully before taking tax-free cash simply because it is available. You can usually take up to 25% of a defined contribution pension tax-free, subject to the lump sum allowance, which is £268,275 for most people in 2026–27. Taking it out does not create extra retirement money; it leaves less in the pension to provide later income. Taxable withdrawals can also affect how much you may pay into a defined contribution pension with tax relief if you continue working.
Compare the cost of flexibility with the comfort of guaranteed income. Check charges and any valuable guarantees before moving an old pension. If you are 50 or over with a UK defined contribution pension, Pension Wise offers a free appointment explaining your options. For a decision involving several pots, a partner’s income or a retirement date you cannot easily change, an FCA-regulated financial adviser can give personal advice. Neither a calculator nor this article can do that job.
To judge whether your pension might last, work out your annual spending gap after dependable income, then test your pot against a retirement lasting to 90 or 95, rising costs and poor early investment returns. Drawdown offers flexibility but no guaranteed end date for the money; a lifetime annuity can guarantee income, with trade-offs. Check your State Pension forecast and tax position before deciding how much to take.
If you’re 55 and planning to retire at 65, you may have only another 120 monthly paycheques left. What you do with them could matter more than you think. For many men, the decade before retirement coincides with some of their highest-earning years. Your salary may finally be where you always hoped it would be. […]
Cancel useful cover, buy the cheapest replacement, invest the difference. Then a claim or breakdown wipes out years of contributions. Which cuts actually last?
A global tracker, a UK tracker and a technology tracker can behave very differently. Here is how to judge what an index fund actually holds, costs and risks.
Buying used is not about making do. It is about paying for the years of use you need, rather than the privilege of being first.
Newsletter
The best guides of the week — collected, without the noise, for anyone who likes to stay a step ahead.
