Many of us spend years, even decades, focused on building a pension pot.
We track our contributions, keep half an eye on our investment performance, and maybe move our money around as retirement gets closer.
But a question far fewer people ask is once the money is there, how long does it need to last?
It sounds simple, but the answer is more complicated.
Life expectancy in the UK is rising, which means someone retiring at the State Pension age today could easily be looking at having to fund 20, 25 or even 30 years of retirement. Get the planning wrong, and even a healthy pension pot can run dry.
This blog explores what longevity means for your retirement finances, and shares some practical steps to help make sure your money goes the distance.
We’re living longer
First, the good news. People in the UK are living longer than ever before. The average life expectancy, according to official figures, is currently around 79 for men and 83 for women. But these averages only tell part of the story.
A 65-year-old man today has roughly a one-in-four chance of living past 90 and a one-in-ten chance of making it past 96. For a 65-year-old woman, those odds are even better. When you look at couples, the likelihood that at least one partner will live into their 90s is higher still.
This is, of course, something to celebrate. But from a financial planning perspective, it introduces what’s known as longevity risk, the possibility of outliving your savings. It’s one of the most common and least-discussed challenges in retirement planning, and it catches a lot of people off guard.
The key takeaway isn’t to worry, but to plan. A retirement that could last three decades deserves the same careful thought as the 35 years of working life that funded it.
The State Pension age is rising, but so is life expectancy
The State Pension age is currently 66 for both men and women. It’s due to rise to 67 between 2026 and 2028, with a further increase to 68 planned for the mid-2040s.
So, someone retiring at 66 and living to 86, which is entirely plausible, faces a 20-year retirement to finance. Live to 90, and that stretch becomes 24 years.
The full State Pension currently stands at £241.30 a week, or £12,547 a year. For many people, that won’t come close to covering their idea of a comfortable retirement. It provides a foundation, but the gap between what the State Pension pays and the lifestyle most people want in retirement needs to be filled by private savings, workplace pensions and other assets.
That makes the question of how long your money needs to last a pressing one.
The Pensions and Lifetime Savings Association produces its Retirement Living Standards to help people get a clearer sense of what different lifestyles in retirement cost. The current figures break down roughly like this:
- A minimum retirement covering basic household bills with a little left over for the occasional treat costs around £13,400 a year for a single person (£21,600 for couples).
- A moderate retirement, with more flexibility and some European travel, comes in at around £31,700 (£43,00 for couples).
- A comfortable retirement, with longer holidays, a new car every few years and more money for leisure, costs around £43,900 annually (£60,600 for couples).
Run those figures out over 20 years, and you’re looking at between £268,000 and £878,000 (£432,000 to £1.2m for couples) just in income. Over 25 years, the range rises to £335,000 to over £1m (£540,000 to £1.5m for couples).
Of course, retirement spending isn’t a flat line. Financial planners often talk about the ‘retirement smile’, a pattern where spending tends to be higher in the early, active years of retirement, dips in the quieter middle period, then rises again later as healthcare costs and potential care needs increase. Planning for a retirement of 20 or 25 years means thinking about all three of those phases, not just the first few years.
Tips for making your pension last longer
Making your pension last isn’t just about having enough money. It’s about managing it well once you retire. Here are some practical steps to consider:
Don’t withdraw too much, too soon
The ‘4% rule’ is a popular strategy. It means withdrawing no more than 4% of your pension pot in the first year of retirement, then adjusting for inflation each year after that. The idea is to give your savings a reasonable chance of lasting 30 years or more.
In practice, many financial advisers in the UK suggest starting at a more conservative rate of 3% to 3.5%, particularly given the uncertainties around markets and inflation. The principle is sound, though. Resisting the temptation to take large chunks of money early in retirement can have a disproportionate impact on how long your pot lasts.
Keep some money invested
Retirement isn’t your signal to move everything into cash. If your money stops growing the moment you stop working, inflation will steadily erode its value. Keeping a portion of your savings invested in assets suited to your risk tolerance and stage of retirement gives your pot the chance to continue growing, even as you draw from it.
Draw from different pots
Most people approaching retirement have several sources of income available to them, such as a workplace pension, a personal pension, ISA savings, the State Pension and possibly other investments. The order in which you draw from these can make a meaningful difference to your tax bill over time. A financial adviser can help you map out the most tax-efficient approach for your situation.
Understand your State Pension entitlement
It’s worth checking your State Pension forecast well before you retire, using the Government’s online tool. Knowing how much you’ll receive, and when, allows you to plan your drawdown from your private savings accordingly. Some people choose to delay claiming their State Pension, which increases the weekly amount they’ll receive when they do start claiming it. It means that if you reach(ed) the State Pension age on or after 6 April 2016, you get 1% added to your regular weekly pension payment for life, for every nine weeks you defer. This can be a useful strategy in the right circumstances.
Review your plan regularly
A retirement income plan isn’t something you set up once and forget. The markets change, your spending changes, and so does your health.
So, what works for you at 66 may need adjusting at 73 or 78. Building in regular reviews, ideally annually, will help make sure your plan stays on track and your money continues to work for you.
What about care costs?
Care costs are one of the biggest financial wildcards in later life.
The average cost of residential care in the East Midlands runs to tens of thousands of pounds a year. While some state support is available, eligibility depends on your financial situation and assets.
Many people don’t end up needing full-time residential care, but they do face costs for home adaptations, mobility aids, private healthcare or home help at some point.
These aren’t things most people factor into their retirement budget in detail.
Building some provision for potential care costs, whether through a financial buffer, long-term care insurance or making sure your overall retirement plan has some flexibility, is a sensible part of planning for a longer retirement.
How can BDWM help?
Retirement planning used to be relatively straightforward. You saved, retired and spent.
But with retirements that could span 30 years or more, a fixed plan is rarely enough anymore.
Your circumstances will change. The markets will move. Tax rules will shift. And your own sense of what you want from your retirement may evolve as the years pass.
The people who tend to navigate retirement most successfully are those who treat their income strategy as a living plan, something they revisit and adjust, rather than a decision made once on the day they leave work.
The longer your retirement is likely to last, the more important this ongoing approach becomes.
At BDWM, we help Leicester residents plan not just for retirement, but through it. That means helping you understand how long your money might realistically need to last, how to draw income in a sustainable way over the long term, and how to adjust your strategy as life changes around you.
So, if you’re approaching retirement, already retired or starting to ask these questions for the first time, we’d love to help. Get in touch today to arrange a no-obligation consultation and find out how we can help your money go the distance.