Retirement Income Calculator
Calculate how much annual income your pension pot could provide in retirement. See how different withdrawal rates affect how long your money lasts.
Your Details
Use our Pension Pot Calculator if unsure
Average UK life expectancy is around 81
4% is the traditional 'safe' withdrawal rate
Your Retirement Income
Total Monthly Income
£1,792
£21,502 per year
From Pension
£833
per month
State Pension
£959
per month (from age 67)
Your pension should last until age 103+
Based on 4% annual withdrawal and assumed 2% real returns
Pension Pot Over Time
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This calculator provides estimates only. Actual income depends on investment performance, inflation, and withdrawal timing. Consider seeking professional advice.
How to Use This Retirement Income Calculator
This retirement income calculator helps you understand how much regular income your pension pot could provide throughout your retirement. Follow these steps to get your personalised estimate:
Enter Your Expected Pension Pot
Input the total value you expect your pension to be worth when you retire. If you're unsure, use our Pension Pot Calculator first to estimate this figure based on your current savings and contributions.
Set Your Planned Retirement Age
Choose when you intend to start drawing your pension. Remember, the minimum age to access a pension in the UK is currently 55, rising to 57 in 2028.
Set Your Planning Horizon
Enter how long you want your pension to last. Consider your family history and health when estimating life expectancy. It is often wise to plan for living longer than average to avoid running out of money.
Choose Your Withdrawal Strategy
Select how much of your pot you plan to withdraw each year. The 4% rule is a traditional guideline, but you may prefer a more conservative or aggressive approach depending on your circumstances.
Include State Pension (Optional)
Tick this box to add the full State Pension to your income estimate. Remember, State Pension typically starts at age 67, not when you retire from work.
Understanding Retirement Income Planning
Planning your retirement income is one of the most important financial decisions you will make. Your goal is to turn your accumulated pension savings into a sustainable income that lasts throughout your retirement while maintaining your desired lifestyle.
The 4% Rule Explained
The 4% rule is a widely-used guideline originating from US research in the 1990s. It suggests that withdrawing 4% of your pension pot in the first year of retirement, then adjusting that amount for inflation each year, gives you a high probability of your money lasting at least 30 years.
However, this rule has limitations. It was based on historical US market returns, which have been higher than UK returns. It also assumes a specific portfolio mix of stocks and bonds. In practice, many UK financial planners suggest a more conservative withdrawal rate of 3-3.5% for greater security.
Pension Drawdown vs Annuities
Pension Drawdown: This approach keeps your pension invested while you withdraw income. It offers flexibility - you can vary how much you take and when. Your pot can continue growing, but it can also shrink if markets fall or you withdraw too much. This calculator assumes a drawdown strategy.
Annuities: An annuity converts your pension pot into a guaranteed income for life. You give up access to your capital in exchange for security. Annuity rates depend on your age, health, and interest rates at the time of purchase. They remove the risk of outliving your money but offer less flexibility.
Many retirees use a combination - buying an annuity with part of their pot to cover essential expenses, while keeping the rest in drawdown for flexibility and potential growth.
The Role of State Pension
The UK State Pension provides a foundation for retirement income. For the 2024/25 tax year, the full new State Pension is £221.20 per week (£11,502 per year). You need 35 qualifying years of National Insurance contributions to receive the full amount.
State Pension age is currently 66 for most people and is rising to 67 between 2026 and 2028. Further increases to 68 are planned for future generations. You can check your State Pension forecast and age at gov.uk.
Tax on Pension Income
When you withdraw from your pension, 25% can usually be taken tax-free (up to the lump sum allowance). The remaining 75% is added to your income and taxed at your marginal rate. Careful planning of withdrawals can help minimise your tax bill - for example, spreading withdrawals to stay within lower tax bands.
Key Factors That Affect Your Retirement Income
Several factors determine how much income your pension pot can sustainably provide. Understanding these helps you plan more effectively:
Size of Your Pension Pot
The larger your accumulated pension, the more income it can generate. Every extra pound saved during your working years translates to more retirement income. Even small increases in contributions can make a significant difference over time.
Withdrawal Rate
The percentage you withdraw each year directly impacts how long your money lasts. A 3% withdrawal rate provides more security than 5%, but results in lower annual income. Finding the right balance depends on your other income sources and risk tolerance.
Investment Returns in Retirement
Your pension continues to be invested during drawdown. If returns exceed your withdrawals, your pot can grow. Poor returns, especially early in retirement (sequence of returns risk), can significantly reduce how long your money lasts.
Inflation
Rising prices erode the purchasing power of your income over time. £20,000 today will buy significantly less in 20 years. Consider whether your withdrawal strategy accounts for inflation increases to maintain your lifestyle.
Retirement Length
How long you live in retirement determines how far your pot needs to stretch. Someone retiring at 60 and living to 95 needs their money to last 35 years - much longer than someone retiring at 67 who lives to 85.
Other Income Sources
State Pension, other pensions, rental income, part-time work, or investment income all reduce how much you need from your main pension pot. Diversifying income sources provides more security.
Tips to Maximise Your Retirement Income
Consider Delaying Retirement
Each year you delay retirement has a double benefit: your pot has longer to grow, and you need it to last fewer years. Delaying from 65 to 67 could increase your sustainable income by 15-20%.
Use Your Tax-Free Cash Wisely
The 25% tax-free lump sum does not have to be taken all at once. Taking it gradually can reduce the amount of taxable income you need to withdraw each year, potentially keeping you in a lower tax band.
Plan for Different Retirement Phases
Spending patterns often change throughout retirement. The active early years (travel, hobbies) may cost more than later years. However, care costs can increase significantly in later life. Consider these phases when planning withdrawal rates.
Keep an Emergency Fund
Maintain accessible cash savings separate from your pension for unexpected expenses. This prevents you from having to sell investments at a bad time or withdraw more than planned from your pension.
Review Your Strategy Regularly
Circumstances change - investment performance, health, spending needs, and legislation all evolve. Review your retirement income strategy annually and adjust withdrawals if needed. What works at 67 may not be appropriate at 77.
Consider Partial Annuitisation
Using part of your pot to buy an annuity covering essential expenses (bills, food, basic needs) provides security. The remainder in drawdown gives flexibility for discretionary spending. This hybrid approach balances security with growth potential.
Frequently Asked Questions
The Pensions and Lifetime Savings Association provides helpful benchmarks. For a moderate retirement lifestyle, a single person needs around £23,300 per year, while a couple needs £34,000. For a comfortable lifestyle with European holidays and a newer car, a single person needs £37,300 and a couple needs £54,500. These figures assume you own your home outright. Your personal needs depend on your lifestyle expectations, housing costs, and health.
Research suggests that a 3-3.5% withdrawal rate provides the highest probability of your money lasting 30+ years. The traditional 4% rule offers a good balance but carries slightly more risk, especially in low-return environments. Very conservative retirees might use 2.5-3%, while those with other guaranteed income sources or shorter time horizons might be comfortable with 4-5%. The right rate depends on your personal circumstances and risk tolerance.
There is no single right answer. Annuities provide guaranteed income for life, removing the risk of running out of money. They suit people who prioritise security and have no desire to leave an inheritance. Drawdown offers flexibility and potential for growth, but carries investment risk. Many people benefit from a combination. Consider your health (those with medical conditions may get enhanced annuity rates), other income sources, and whether leaving money to beneficiaries is important.
If your personal pension is exhausted, you would need to rely on State Pension and any other income sources. This is why sustainable withdrawal planning is crucial. State Pension alone (around £11,500 per year) is below most people comfortable retirement needs. If you are concerned about longevity risk, consider using part of your pot to buy an annuity, which guarantees income for life regardless of how long you live.
Technically, yes - from age 55 (57 from 2028) you can withdraw your entire pension as cash. However, only 25% is tax-free. The remaining 75% is added to your income for that tax year and taxed accordingly. This could push you into the 40% or 45% tax bracket, meaning you could lose nearly half your pension to tax. Taking large lump sums also means losing out on continued tax-free growth. For most people, phased withdrawals are more tax-efficient.