After decades of hard work and saving, many people enter retirement only to face an unexpected shortfall, not due to insufficient savings, but because their withdrawals aren’t efficient.
Without a clear plan for managing your income and spending, it can be easy to lose considerable sums to tax each year.
A well-structured retirement income plan can give you control over your funds. It can help to balance everyday costs with bigger goals while making your money work as efficiently as possible.
Read on to discover how to build an income plan that supports your financial security and peace of mind in retirement.
Be clear on your retirement goals
Before you can build a solid retirement income plan, it’s important to have a clear picture of what you want life after work to look like. The clearer your vision, the easier it will be to create a strategy that supports it.
Start by thinking about the lifestyle you’d like to lead. What age do you want to retire at, and where do you want to live when you do? What will your day-to-day expenses look like?
Consider any more elaborate goals as well, such as travel plans, family support, or paying off remaining debts like a mortgage. And don’t forget to think about the legacy you’d like to leave behind.
Once you’re clear on your goals and the financial targets you’ll need to reach to achieve them, you can begin to factor in elements outside your control. This might include care costs, inflation, or market volatility.
A financial planner can help through this process. They can use tools such as cashflow modelling to map out how your income, spending, and savings might change over time, and how different choices and life events could affect your long-term financial wellbeing.
Check in with your pensions
Your pensions are likely to be the foundation of your retirement income, so it’s important to keep them under regular review to ensure you know what their value will be.
Begin by checking your UK State Pension forecast to see how much you’re set to receive and when payments will begin. If you’re not on track to receive the full State Pension, you may want to top up your National Insurance contributions.
Next, review your workplace and private pensions. Remember, you can usually withdraw up to 25% of your pension tax-free, up to the Lump Sum Allowance of £268,275 (2025/26). This tax-free amount can be taken either as a single lump sum or gradually through drawdown.
By getting a clear view of your State Pension, private pensions, and tax-free lump sum, you can plan your withdrawals tax-efficiently and sustainably. This can not only help you make the most of your retirement income but could also ensure your savings last longer.
Combine your pension withdrawals with your ISA savings to improve efficiency
Blending your pension withdrawals with ISA savings can make a big difference to how long your retirement income lasts, as it can help to reduce the amount of tax you pay.
For example, you may want an income of £2,000 a month in retirement. If you were to draw that entirely from your pension and had already withdrawn your tax-free lump sum, you could end up paying around £2,286 in Income Tax a year. But by drawing from a mix of income sources, you could receive the same £2,000 a month tax-free.
Here’s how that could look over the course of a year:
- £4,190 taken as tax-free cash from your pension
- £12,570 withdrawn as pension income within your personal allowance
- £7,240 drawn from your ISAs
By combining your income in this way, you can keep it tax efficient. This can help your savings stretch further and support your security throughout retirement.
A financial planner can help you create a retirement income plan and conduct regular reviews
A financial planner can work with you at every step of creating a retirement income plan. They can help you clarify your goals and find financial targets based on what you’ll need to achieve them. They can also assess your savings to find a withdrawal strategy that is efficient while ensuring you have enough to meet your goals.
Additionally, a financial planner can help you conduct regular reviews to make sure your plan stays aligned with your life circumstances and wider market conditions.
With a watertight retirement income plan, you can retire with the confidence that your savings and wealth are sufficient to support your goals and dreams.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
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.
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.
