How to prepare your pension for a longer life

People are living longer due to improvements in lifestyles and healthcare, but this longevity brings new challenges when it comes to financial planning.

Office for National Statistics figures show that 15,330 people reached the age of 100 in England and Wales in 2024. Boys born in 2023 can now expect to live on average to the age of 86.7 and girls to 90.

But the prospect of living to 90 has “massive implications for our own pension saving”, said Yahoo! Finance. Many people retire at 65 but “do you have the means to generate an income that could last 35 years or more?”

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Work out how much you need to retire

There is no “one-size-fits-all” retirement income, said Wesleyan, and the amount you need will depend on “your individual circumstances, desired lifestyle, expected outgoings and how long you might be retired”.

As a ballpark, figures from Pensions UK show it would cost £43,900 per year for a single person to have a “comfortable retirement”, which covers spending such as eating out, holidays and transport.

The Pensions UK data gives you a “better idea”, said Which?, of how much money you will need in retirement and the state pension and private pensions, as well as other assets, “are the building blocks of most people’s retirement income”.

The “next step” is working out how much you’ll need to save into your pension to get the income you want.

Figures from the consumer watchdog show a single person would need a pension pot worth as much as £609,270 for a comfortable retirement.

Start saving

Saving from as young an age as possible can make a “big difference”, said Rathbones. Start saving at the age of 25 and £1,608 per month could grow to £1 million at 65, the wealth manager said. But wait until 45 and you would need to save £3,659 per month to reach £1 million at 65.

Yahoo! Finance suggests increasing your contributions “every time you get a pay rise or new job” and says tracking down pensions from previous jobs could help “strengthen your position”.

Buy an annuity

The “surest way to make your pension last a lifetime” when you retire, said Tom Selby, director of public policy at AJ Bell, in MoneyWeek, is to purchase an inflation-protected annuity. This provides a guaranteed income for life based on the value of your pension, age and lifestyle.

The risk is that “your pension savings are committed to this product and you can’t change your mind”.

Opt for income drawdown

Alternatively, you can stay invested and make withdrawals from your pension using drawdown.

Investment performance isn’t guaranteed, though, said MoneyHelper, and “if you take out too much money too soon, you could run out of money”.

Many retirees follow the 4% withdrawal rule. This suggests taking 4% from your pension and adjusting for inflation at 2% each year. This “could mean your savings last 30 years or more”, said PensionBee, and is seen as a “sustainable withdrawal method” because your spending is increasing based on inflation, not by how your investments have performed.

You can take 25% of your pension tax-free, but any other income you take from your pension is “potentially taxable”, said Fidelity.

However, you don’t need to spend “all your savings” on an annuity. You could instead keep some of your pension invested “and buy an annuity with the rest to cover your day-to-day costs”.