Many people dedicate decades to working hard and saving for retirement. Yet they struggle to make the most of it because they lack a clear plan for managing their income and spending.
Indeed, according to a study reported by Actuarial Post, only 9% of UK adults over 50 have a written retirement plan.
Having a structured income plan for retirement can help ensure your money covers daily needs and larger expenses while remaining as efficient as possible.
Read on to find out how to create a retirement income plan that can help support your long-term security.
1. Clarify your goals
The first stage of creating a retirement income plan is to be clear about your goals for that chapter of your life.
You may want to ask yourself the following questions:
- When do you want to retire?
- Where do you want to live?
- How much will you need to spend on essentials such as food, utilities, and transport each month?
- What big trips do you want to take?
- How much financial support will you need to give to your family and loved ones?
- Are there any debts, such as your mortgage, that you still need to clear?
- How much of your estate do you want to leave as your legacy?
Answering these questions is key to setting clear, well-defined goals that can help you estimate how much you’ll need in retirement.
Once you’ve done this, you can also account for factors beyond your control, such as care costs, inflation, or market downturns.
A financial planner can help you clarify your goals and estimate your future financial needs. They can use cashflow modelling to project your income, spending, and savings over time, helping you visualise how different decisions, life events, or external factors could impact your long-term financial security.
2. Review your pensions
Your pensions are integral to your retirement income plan, so it’s important to regularly review them to ensure you’re on track.
Start by checking your forecasted UK State Pension to confirm how much you’re likely to receive and when you’ll receive it. You usually need 35 qualifying years to receive the full amount, and you might want to top up your National Insurance contributions if you’re behind.
You may also want to consider the optimal time to start claiming, as deferring your State Pension can sometimes increase your payments.
Next, review any workplace or private pensions you have. Remember that you can withdraw 25% of your pension tax-free up to the Lump Sum Allowance, which is £268,275 in 2025/26.
Knowing the projected value of your pension pots and how much your 25% tax-free lump sum could be worth can help you structure your withdrawals throughout retirement.
3. Use ISA savings to improve your efficiency
Combining pension withdrawals with your ISA savings can make a significant difference to how long your retirement savings last, as it can reduce your tax liability.
For example, if you were to draw £2,000 per month solely from your pension, you could face around £2,286 in annual tax. However, by strategically combining different income sources, you could receive the same £2,000 a month tax-free.
For instance, you could take the following:
- £4,190 as tax-free cash from your pension
- £12,570 as pension income within your personal allowance
- £7,240 from your ISAs.
This kind of planning can help ensure your retirement funds last longer and that your income remains efficient over time.
4. Explore alternative income sources
As well as your pensions and ISAs, you may have other sources of income that can help support your retirement.
For instance, your property could provide an additional income stream. If you own a second home, you could rent it out. Alternatively, if you have a spare room or annex, you could let it to a tenant or to holidaymakers for short-term stays.
You may also want to consider annuities. An annuity allows you to exchange a lump sum for guaranteed income, either for a fixed term or for the rest of your life.
Combining an annuity with your pension can provide a reliable foundation for your retirement finances, helping you cover essential expenses and reduce uncertainty about your future income.
5. Regularly review your plan
Regularly reviewing your retirement income plan helps ensure it remains aligned with your goals, spending patterns, and market conditions.
Life changes, unexpected expenses, or shifts in investment performance can all impact your retirement income.
By reviewing your plan consistently every year or six months, you can make adjustments to your withdrawals, savings, or investment strategy. This can help keep your finances on track and give you confidence that your goals remain achievable.
Get in touch
A financial planner can help you create a retirement income plan that maximises your efficiency while ensuring you have enough to achieve your goals.
To speak to a financial planner, get in touch.
Email info@blueskyifas.co.uk or call us on 01189 876655 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.