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How long will my money last in retirement?

When you give up work, you’ll want to know that your hard-earned savings will take care of all your needs throughout your whole retirement. There are lots of things to consider if you want to make sure your pension lasts as long as you do. Here we run through some things to think about.

Important information - please keep in mind that the value of investments can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Ensuring your savings last

A double challenge: inflation and longevity

It’s important to understand the challenges you face in making the most of your retirement pot – nobody wants to run out of money before they die. Living longer means your savings need to stretch that much further.

Today, most 65-year olds can expect to live a further 20 years on average – but many will live far beyond this. That’s why it makes sense to plan for 25 years or more in retirement. Over this time, inflation will eat into the value of your savings. Even a low inflation rate will reduce the purchasing power of your money. This chart shows you how the effects of inflation mean you'll be spending more in the future to maintain your buying power today. For example, buying a car for £25,000 today would cost you £41,015 in 25 years' time at 2% inflation.

So, if you want your income to maintain its buying power over time, it’ll need to increase in line with the rising cost of living. This means you’ll need to earn a return on your money. The good news is, there are ways you could inflation-proof your savings - although there are no guarantees.  We’ve suggested some approaches to investing your money which could work for you.

Think about your withdrawal rate

One of the biggest factors affecting how long your pension pot lasts is how much you take out of it – and how often these payments are.  If your only source of income is your pension, the aim would normally be to withdraw enough so that your income is maximised while ensuring your money doesn’t run out too soon.

Fidelity has created the global Retirement Savings Guidelines that provide a set of simple 'rules of thumb'. This research looks at how much income you should take so that it lasts for your whole life. It suggests that a level of income of between 4% and 5% per annum from age 65 is likely to be sustainable in the long term. This rate is based on the income rising with inflation (assumed to be 2% a year). But this is only a broad rule because every situation is different and how long your money lasts will also be dependent on the investment returns you achieve; you should review this regularly and consider adjusting your income in line with market fluctuations.

The graphic below indicates what this might mean. It is based on a couple aged 68 planning to retire with £180,000 of retirement savings taking an income worth 4.1%. It shows how they need to withdraw more each year so their income keeps up with the cost of inflation at 2%. Read the full assumptions our research is based on

Estimate your retirement income

If you want to know how much income your pension pot could generate, try our Retirement Income Estimator tool.

Withdrawing from capital

The basis of a retirement fund is that growth and income from investments can create enough sustainable income to pay for your lifestyle. Yet many people want - and need - to spend their pot in their retirement; after all, that is what it’s there for.

If you only ever took the income generated naturally by investments, or equivalent to the growth in your fund, the pot would probably last far longer than you do - but is that what you want? For people whose only source of income is their pension, the aim would normally be to withdraw enough that your income is maximised, but that your money won’t run out too soon.

Regularly reviewing the performance of your investments will help you manage the sustainability of your income.

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Call us now to book a free no obligation appointment with one of our retirement specialists on 0800 368 6882. We’re available Monday to Friday from 9am to 5pm.

Pension Wise

The Government's Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance over the telephone on 0800 138 3944 or online.

Important information - Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not normally be possible until you reach age 55. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please contact Fidelity’s Retirement Service on 0800 368 6882 or refer to an authorised financial adviser.