Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

How to potentially avoid running out of money at retirement

Inflation eroding your purchasing power, unexpected health care costs and stock market slumps are just a few of the worries of people approaching retirement. However, the main concern appears to be running out of money during retirement. Your retirement money needs to last as long as you do, however many people underestimate how long they are likely to live and may struggle financially in later life. Your retirement could last 30 years or more and the average life expectancy is now 83 for men and 87 for women*.

Running out of money at retirement usually means that you have used your private pension but will still be eligible for the state pension from age 65; for the 2019/20 tax year this is £168.60 per week. However, this is unlikely to cover your monthly expenditure or fund the retirement you were hoping for.

We have created a checklist to help you have enough money for your lifetime.

Decide how you want to receive an income

You can choose to receive a guaranteed secure income when you retire by converting a proportion of your savings into an annuity.

You may choose to leave the remainder of your pension invested in drawdown, which will give you the option of a flexible income and lump sums when you need them while allowing your money the potential to continue to grow. If your pot does not grow as much as you were expecting, you may need to adjust the income you withdraw accordingly.

Calculate your retirement budget

Before retiring, you should make a list of your outgoings and break them down into the essentials and non-essentials. This will enable you to calculate your monthly expenditure so you know how much money you will need to fund your retirement. If your monthly expenditure exceeds the amount you will get monthly from your pension savings, there are options available to you including delaying your retirement to give you time to save more, cutting your spending or creating a retirement planning strategy with the aim of increasing your retirement income.

Planning and staying on track with your budget will provide you with a better chance of not running out of money at retirement.

Arrange a Professional Review of your Pension

Increase your pension contributions

A pension is the most effective way to save for retirement due to the levels of tax relief, up to 45%, on the basis that any tax relief above the basic rate if claimed via your annual tax return. Subject to certain conditions, you can increase your contributions at any time to potentially provide a bigger retirement pot to withdraw from when you choose to retire. The earlier you contribute, the more time the money has to potentially grow.

Delay your retirement

You could consider working for longer, which means you can make pension contributions for longer and continue to benefit from any employer contributions. This will reduce the possibility of running out of retirement savings. There is no mandatory retirement age, you can currently usually access a private pension from age 55 and start receiving a state pension from age 65. You could choose to work part time and phase into retirement later.

Increase your retirement income

If you do not think your pension savings will fund your dream retirement, you could consider alternative options to help increase your income. For example, you could choose to rent out a spare room to increase your monthly income. Another option is to aim to grow your retirement pot over time; at Four Wealth Management, our advisers are experienced in creating a bespoke investment plan tailored to your needs to help enable you to achieve your income goals.

Rebalance your retirement portfolio

As you near retirement, it is important to rebalance your portfolio to reduce risk and help you to calculate approximately how much income you will receive from your savings when you retire. A Four Wealth Management adviser can help ensure your portfolio is diverse to mitigate risk and maximise your savings. Regular rebalancing and reviews of your portfolio will help ensure you will not run out of money.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation and reliefs can change at any time. The value of any tax relief depends on individual circumstances.


*Office for National Statistics, Life expectancies, 2018

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