Navigating The Retirement Income Maze

Written by Angus, 26 April 2022

Working out how to fund your chosen lifestyle when you are no longer earning could be the most important financial planning you do. There are many ways to build up assets which can be used to generate retirement income, but, can you be sure they will deliver what you require?

In this article, we cover some basic principles in planning for your future. These form the basis of our initial (and ongoing) planning with our clients. We are assuming you have already done the first step; deciding what you actually want to do with your time.

Here are the key points:

  • Figure out your cost of living – basic expenses and the fun stuff
  • Assume you’re going to live to 100+ and your income needs are likely to change over time
  • Don’t underestimate inflation
  • Don’t forget the State Pension
  • Make sure you save enough money, then save a bit more
  • Remember to enjoy life in the meantime

Figure out your cost of living

Whatever ‘retirement’ means for you it’s essential to consider how much you’ll need to live on. Estimating that is easier the closer you are to retirement. However, it is worth having a go at it as early as possible, because that gives you a rough target to aim for.

Start by adding up your yearly spending, not forgetting to include annual costs like car and home insurance as well as ongoing weekly and monthly costs. That should give you a rough idea of how much your current lifestyle costs. Then, take off any outgoings that will have stopped by the time you retire (e.g. mortgage payments, regular savings, pension contributions and life insurance premiums). Finally, adjust for contingencies, such as if you plan to move house.

If you want to go further, think about how your life may change in retirement and adjust for any subsidies you get from work – for example, a company car now.

Split the figure into two categories – essential spending and discretionary. Beyond the basic costs of running your home, it’s up to you whether you consider eating out and holidays as essential or discretionary. What can’t you live without?

Assume you are going to live to 100+

According to the Office for National Statistics (, someone who is 65 now is expected to live to age 85-87 on average. However, many live well beyond that.

Plan for that eventuality; the last thing you would want is to run out of money. Also, it’s possible that your cost of living may increase as you get older. Although you may do less, you might need to pay for care at some stage, and the grandchildren will always be grateful for your help if you end up having money spare.

Recognise your income needs are likely to change over time

It’s likely that we will be most active early in our retirement, and perhaps less so later on. Also, if you are retiring before your State Pension (or other guaranteed pensions) commence, you’ll need to lean more heavily on your savings and investments in the early years. With longer lifespans, the likelihood of needing assistance with living as we age has increased. Your costs may increase again in later life should you need care.

Don’t underestimate inflation

The last 40 or so years have seen a fairly consistent fall in inflation rates in the developed world. In the early 1980s central banks set out to tame the beast of inflation, which had run out of control in the 1970s. They succeeded, and we have become used to inflation rates averaging just 1.7% over the last 10 years (CPI inflation, source ONS).

However, with enormous amounts of government spending to deal with the economic fallout from the pandemic, ultra-loose central bank policy in the form of Quantitative Easing, structural changes in the world economy and very low-interest rates, there is a strong case to be made that inflation will be higher in the future.

Supposing it averages 3% a year over the long run. At that rate, money loses about 25% of its purchasing power over 10 years. Whatever your sources of income, you will probably need them to increase over time to maintain a certain standard of living.

Don’t forget the State Pension

Although the starting age for the State Pension has moved in recent years, it is still payable for 18-20 years based on average life expectancies and is guaranteed for your lifetime. The 2021/22 full pension for new claimants is £9,339 per year, increasing in line with prices, earnings or at least 2.5% per year under current rules (the so-called ‘triple lock’).

By itself, that may not be enough to live on. However, if a couple both have full pensions, then their combined income would be over £18,000 a year, which could go a long way to meeting basic costs of living.

It’s worth obtaining a State Pension Statement, to check you are on track for a full pension. You can apply for a forecast via

Make sure you save enough money, then save a bit more

How much is enough? It is the key question we seek to help clients answer, and then we help them achieve that; navigating the rules and the markets and adjusting as their situation and needs evolve over time.

If I have learned anything, it is that it is better to overshoot your target than to fall short: more options, less stress. If you would like to have a further chat and start building a plan for your future, please do get in touch.

All information is based on our understanding of current law and practice, which may be subject to change in the future. Past performance is not an indication of future performance. Any investments you make, and any income can go down as well as up – you might not get back the full amount invested.