Eight essential tips for managing your money in retirement

Saving for retirement is like building a house. You gather your materials, take professional advice, and construct a building that will soon become a home. Once complete, you get to enjoy the fruits of your labour.

However, even a well-built house needs regular maintenance to stand the test of time. For your retirement, this means ensuring you have the resources to maintain your lifestyle and continuing to carefully manage your wealth year after year.

Your approach to managing your money in retirement will be shaped by several factors, and understanding these is a crucial step in your ongoing financial plan. Here are eight essential ways you can ensure you’re adequately managing your money in retirement.

1. Craft your retirement income blueprint

Just as a construction project requires a blueprint, so do your finances. To develop your retirement income blueprint, start by asking yourself a few questions:

• When will I need to start drawing an income? Retirement isn’t always a sudden stop. Many opt for a phased transition. Having a clear timeline can help you plan when to access your pension and other savings.
• What do I envision for my retirement? Whether it’s travel, exploring hobbies, or spending time with loved ones, your goals will directly influence your financial needs.
• How much income will I realistically need? Consider your desired lifestyle and factor in both essential and discretionary spending to ensure you have enough.
• How long will my funds need to last? With increasing life expectancies, it’s wise to plan for a retirement that could span two decades or more.

When you have a clearer idea of your plans and goals, making decisions about how to manage your money becomes easier.

2. Know your income sources

For most retirees, your private pension(s) will likely form the foundation of your income. These could be workplace schemes or personal arrangements that you’ve built and sustained over your career. It’s vital to have a clear picture of their current value and potential future projections.

Beyond personal pensions, you might have other potential income streams, including:

• Savings and investments: Individual Savings Accounts (ISAs), General Investment Accounts (GIAs) and bonds can provide valuable supplementary income.
• Other investments: Stocks and shares held outside of pension wrappers can also help contribute.
• Property: Buy-to-let investments, downsizing, and equity release could be options to consider as a source of retirement income.
• The State Pension: This is likely a guaranteed source of income, which we’ll explore more in the next section.

Your income sources may be personal to you, but for advice about how to manage them effectively, talk to a Financial Planner.

3. Factor in the State Pension

The State Pension provides a valuable foundation for your retirement income. Thanks to the triple lock, each tax year, it will increase by the higher of three markers:

• Wage growth
• Inflation
• 5%.

In the 2025/26 tax year, the full new State Pension is £230.25 a week, or £11,973 annually. This increased by 4.1% in April, based on wage growth from the previous year.

While this is unlikely to be enough for you to live comfortably on its own, it’s a guaranteed income stream that increases each year and lasts a lifetime. The amount you can claim will depend on how much National Insurance you have paid – you can check your State Pension forecast to gain an idea of how much you may expect to get.

Working the State Pension into your overall retirement can also help you plan for Income Tax and potentially determine your withdrawal plans.

4. Don’t underestimate inflation

As recent events have proved, we can’t always predict how or when inflation will rise, but building flexibility into your financial plan could be key to weathering inflationary pressures.

Consider how the rising costs of goods and services could affect your income, particularly if your income is fixed.

Regularly reviewing your budget and exploring investment options that aim to outpace inflation could be beneficial. Some retirement income options offer inflation-linked increases, which can help your income keep pace with rising prices.

5. Strategically minimise tax

Reducing your tax burden can be useful at any stage of your financial life, but it becomes particularly important when you might no longer be earning a regular income. There are several actions you can take to minimise your tax burden in retirement.

In the 2025/26 tax year, both you and your partner have a Personal Allowance of £12,570, meaning a combined tax-free income of over £25,000 to work with.

Using your Pension Commencement Lump Sum (PCLS), where you can withdraw up to 25% of your pension fund tax-free, you could access a regular tax-free income. Keep in mind that your PCLS will either be 25% or £268,275, whichever is lowest.

Leaning on your Individual Savings Accounts (ISAs) could help offset your tax, as withdrawals from your ISAs are tax-free.

There are plenty of tax breaks you could take advantage of in retirement, so make sure you speak to a professional who can help you make the most of them.

6. Account for future commitments

As you plan for your retirement income, consider any potential future financial obligations. This might include supporting your children or grandchildren with education costs, wedding expenses, or helping them onto the property ladder.

Proactive planning can ensure that providing such support doesn’t create unnecessary financial strain for you.

7. Build an emergency fund

Investment markets can experience unexpected fluctuations, which could disrupt your income, even temporarily. To mitigate this risk, consider keeping an emergency fund in place. You may have kept one in your working life, but they’re just as important in retirement.

Having an emergency fund in place can also help you cover unexpected expenses, such as home repairs or medical bills, without needing to draw prematurely from your long-term investments, potentially hindering their growth.

Aim for at least three to six months’ worth of essential living expenses in an easily accessible, low-risk savings account.

8. Regularly review and adapt your plan

Just as a well-maintained house requires periodic checks and updates, so does your retirement financial plan.

Your circumstances, the economy, and even your goals, can change over time. Schedule regular reviews of your income, outgoings, and investments, to ensure they still align with your needs and aspirations, even in retirement.

Get in touch

Don’t hesitate to seek professional advice to help you navigate these ongoing adjustments and make informed decisions throughout your retirement journey.

If you’re an existing client here at PenLife, your Financial Planner will guide you through this journey. If you’re new or just researching, talk to us about how we could help you manage your retirement income.

Email us at enquiries@pen-life.co.uk, or call 01904 661140 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 or tax 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. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.

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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Equity release will reduce the value of your estate and can affect your eligibility for means-tested benefits.