Income withdrawals are one way to take a flexible income from your pension. But how can you help ensure that your money lasts a lifetime?

Unlike using your pension fund to buy an annuity, which provides a guaranteed income for life, taking income directly from your pension fund brings the risk your income will run out before you do.

By choosing to keep your savings invested during retirement, you can potentially make your money work harder, but this also requires ongoing management of your investments.

There is a risk of running out of money early, so you need to stay on top of your investments and the withdrawals you’re making. Especially as the value of your investments can go down as well as up, so you could get back less than you invested.

How long is a lifetime?

For income withdrawals to last a lifetime, it’d be ideal to know how long that would be. While no one can exactly predict their lifespan, thinking about whether you’re likely to live into your 90s helps plan the amount of income you can afford to withdraw each year.   

UK average figures 1 suggests that 65-year-old men can expect to live another 19 years (to age 84) and 65-year-old women another 21 years (to age 86). These numbers are based on projected UK population averages, and an individual’s lifespan might be significantly more or less than these estimates. Overall, from birth 1 in 5 men and 1 in 3 women reach at least age 90.

Different factors affect how long each of us lives. Nothing’s for definite, but you’d expect certain things to have an impact on your lifespan. Like your genes (did your parents live into their late 80s or 90s?), your wealth, your health and lifestyle and where you live.

Moving to an annuity – an option later on

While leaving your pension invested and taking an income directly from it can potentially deliver a higher retirement income than an annuity, this potential reduces with age.

Generally speaking, the older you are when you purchase an annuity, the more likely you are to get better rates. So, if you’re initially taking an income directly from your pension, at some point it could be worth comparing it with what you might get from an annuity. Using all or some of your remaining fund to purchase an annuity will provide a guaranteed income for the rest of your life.

Remember though, the overall 'return' an annuity offers will depend on how long you live. Whatever age you buy an annuity, there's the risk that you could die before getting your ‘money's worth'.

And as well the potentially higher income, there are other reasons you might want to keep all or some of your pension fund invested. For example, you may want to have your fund available to help cover unexpected large bills such as building work or care costs, or as a way to pass an inheritance to loved ones. Just remember that while invested, your pension can can still go down as well as up, so you could end up getting back less than you expected. These considerations need to be balanced against the certainty and security of an annuity. 

Get expert advice

It’s important to get financial advice when making a decision about your pension, so please speak to your financial adviser. If you don’t have an adviser, we offer free pension support as well as tailored financial advice. Find out more about which is the right option for you.

Alternatively, your employer may have a financial adviser you can speak to.

Speak to our pension experts

We offer free pension support and you can get tailored financial advice too. So if you’re struggling to get your head around your pension or have questions about your options, we can help.