How long will my pension last?

We examine the factors influencing the longevity of your pension and the strategies you can use to optimise your funds, so they last as long as possible.

When can I retire?

In 2011, the UK retirement age of 65 was abolished, meaning that you can retire at any stage.

According to a recent publication by the Institute for Fiscal Studies (IFS) titled "Understanding retirement in the UK," the employment rate drops sharply from age 55; however, people typically retire between 60 and 65. 

A likely reason for leaving the workforce at 55 is that workplace and personal pensions are usually accessible from this age, offering flexibility.

However, the state pension age is currently 66 (for those born between 6 October 1954 and 5 April 1960) and is set to gradually rise to 67 by 2028. The state pension age is forecast to rise further in the future.

The amount you get from the state pension increases in line with the triple lock (which guarantees it increases by the highest of inflation, wage growth, or 2.5%), while personal pensions may differ.

Ensuring a robust pension plan is crucial, especially given increasing life expectancy in the UK. The average life expectancy for men is 79 years and for women 83 years, meaning your pension might have to last for over two decades.

These factors highlight the significance of careful financial planning to ensure sustained financial security throughout retirement and may help you decide when you can retire.

How much money in my pension do I need?

The importance of pension planning cannot be overstated, especially with concerns about people living longer.

To ensure you know how much you need to retire, you must estimate your required pension funds carefully. This involves considering living expenses, lifestyle goals, and your expected retirement age.

Different retirement lifestyles require various financial needs, highlighting the importance of tailored planning. For example, basic retirement costs in the UK might average over £14,400 annually for a single-person household, while luxury retirements can be around £43,100 for a single person.

Those who have already reached state pension retirement age and receive the basic state pension currently receive £169.50 per week, while those on the new state pension get £221.20 weekly.

This is unlikely to cover your expenses, so make some strategic moves before retiring, such as paying off your mortgage or any other loans and saving as much as possible beforehand.

How long will my pension last?

How long a pension will last depends on various factors, such as your lifestyle choices, health, inflation, and investment decisions.

Making wise lifestyle choices, like being careful with your spending, could help your pension go further.

However, if you spend extravagantly, it could deplete your funds more quickly.

The following factors could also put a strain on your pension's longevity:

• Unexpected health issues and medical expenses.
• Inflation as it affects your purchasing power over time.
• The type of pension you choose.
• If you use your lump sum allowance to pay beneficiaries from your pension fund tax-free.

For example, an annuity provides a fixed income but may not be very flexible, while other options like drawdown can be more versatile but expose you to market fluctuations. 

So, finding a balanced approach that considers how much you need to retire and how you can optimise your pension and safeguard your financial well-being throughout retirement is essential.

How to make the most of your pension

You can employ several strategic approaches to ensure your pension lasts as long as possible.

These include the following:

• Diversifying your investments: This can reduce risks and may increase overall returns.
• Budgeting carefully: Budgeting allows you to balance your spending and saving and teaches you sustainable financial habits for retirement.
• Exploring part-time work options: By taking on additional work, you can provide an extra source of income and help ease any financial strain.
• Paying off loans and mortgages before retirement: Doing this will decrease your financial load.
• Considering how you access your pension: You should plan this to avoid a hefty and avoidable tax bill.

While a balanced mix of annuities and drawdown can offer flexibility, you should seek professional financial advice when planning your pension.

Doing so will help you make the best decisions, align your pension strategy with your financial goals, and safeguard against potential pitfalls when you retire.

Get expert financial advice 

Understanding how long your pension will last is essential for retirement planning.

This includes determining the right retirement age, estimating the required pension, and adopting strategies for longevity to maximise how much money you’ll have available to support you through your golden years.

However, pension planning can be a complex process, with many different factors to take into consideration. Therefore, seeking personalised advice from a financial adviser is strongly recommended to assist you in making informed decisions.

Let Unbiased match you with an expert financial adviser who can ensure your pension will last longer and provide the financial support you need during your retirement.