Will 2026 be a good year to retire?

Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

• Read: How much cash to hold in retirement

Mortgage costs

On the other hand, lower interest rates should be good news for any retirees who have not yet fully paid off their mortgage debt. Those coming off fixed-rate tariffs may find their monthly payments reduce and potentially give them the opportunity to overpay the mortgage and clear the debt early.

• Read: Overpay the mortgage, ISA or pension - which is best?

Future market performance

Some pensioners will opt to take their income from investments (via drawdown) rather than buying an annuity. For this group, market returns in the first five to 10 years of retirement are crucial.

This is because returns in the early years of retirement have a disproportionate impact on how long your pot lasts. A stock market crash in the first five years of your retirement is much more damaging than one 25 years into your retirement, even if the average annual return you achieve over that time is the same. This is what’s known as sequencing risk.

Towards the end of 2025, investors have become jittery about high stock market valuations. Some are questioning whether we are in a “bubble” that could soon burst.

Those approaching retirement who are concerned about this prospect have several options:

• Reduce stock market risk in their portfolio, increasing their exposure to assets like bonds and potentially gold. 
• Increase their cash buffer, reducing the risk of having to sell investments for income during a market crash. 
• Consider phasing into retirement, retaining some level of income from part-time work. 
• Opt for a blended strategy, purchasing an annuity to cover most of their basic needs and relying on drawdown for discretionary spending. This would reduce their reliance on investment income

Inflation

Inflation is the deadly retirement risk that we often ignore. Our own Fidelity calculations show that, if inflation remains at 3.6% rather than the Bank of England’s target of 2%, a typical person’s pension pot could run out 11 years sooner.⁴

In its latest forecast, the Office for Budget Responsibility (OBR) expects inflation to be higher for longer - 2.5% in 2026 and only reaching the Bank of England’s 2% target by 2027.⁵

However, price increases have been slowing and expected to get back under control in the next few years. Lower and more predictable inflation makes it easier for new retirees to plan spending and build sustainable income strategies.

Under the triple lock, the state pension goes up each year by inflation, average wage growth or 2.5% (whichever is highest). Therefore, if inflation falls to 2%, retirees are guaranteed to see their state pension rise faster than prices.

State pension

One of the biggest positives for anyone retiring in 2026 is the generous uplift we have seen in the state pension. In recent years it has risen by:

• April 2024: +8.5%
• April 2025: +4.1%
• From April 2026: +4.8% 

This means that, from April 2026, the full new state pension will be around £241.30 per week, or just over £12,547 per year - one of the largest multi-year increases since the triple lock was introduced.⁶

• Read: State pension generosity compared: how does the UK measure up?

Taxation

The government’s decision to freeze income tax bands in the Autumn Budget means more retirees will pay tax on their pension income. This “fiscal drag” pulls millions into higher or basic rate tax over time.

It also announced tax increases on dividend income and savings. From April 2026, the ordinary rate of dividend tax will rise from 8.75% to 10.75% and the upper rate will rise from 33.75% to 35.75%. This will impact those retirees relying on dividend income from outside an ISA or pension.

The verdict

So, will 2026 be a good year to retire?

The pros

• Strong state pension increases
• Lower inflation and more stable living costs
• Falling interest rates easing mortgage costs
• Strong market gains in recent years 

The cons

• Frozen tax thresholds dragging more retirees into tax
• Higher taxes on dividends and savings income
• Softer annuity and savings rates if interest rate cuts continue

Overall, 2026 could be a good year to retire for many people, especially those with a well-diversified portfolio, a clear income strategy, and an understanding of the tax changes coming into force.

However, stock market performance is always a risk and it’s crucial to have a plan for how you would weather a prolonged downturn.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: What income might I get from a £250,000 pension?
• Read: 6 money mistakes people make in their 60s
• Read: Generate your retirement income the Warren Buffett way

Source:

¹Fidelity International. Data from 30.11.20 to 1.12.25. The FTSE World Government Bond Index was used to represent bonds and the S&P 500 Index to represent equities. Fees are included.
²FactSet 8.12.25
³As at December 2025
⁴Calculations by Fidelity International, November 2025. The analysis models a 55-year-old woman earning £3,500 per month after tax with a pension pot of £300,000, contributing 15% of her pre-tax salary into her pension each year until retiring at age 67 assuming pay rises of 3.6% per year with 10% promotion every five years. It assumes investment growth of 5.2% per annum after fees and compares two inflation scenarios: a baseline of 2% and a higher inflation case of 3.6%. On retirement, she draws an income equivalent to two-thirds of her final salary, with withdrawals increasing each year in line with inflation, and receives the full new state pension from age 67.
⁵CP 1439 – Office for Budget Responsibility – Economic and fiscal outlook – November 2025
⁶Abstract of DWP benefit rate statistics 2024 - GOV.UK