How to draw a sustainable pension income throughout retirement

Whether you’re approaching retirement or recently retired, not knowing if you’ll have enough income to last the rest of your lifetime can be a big concern.

In fact, IFA Magazine reports that 65% of pre-retirees are worried about creating a sustainable retirement income, whilst 61% are concerned they will outlive their retirement savings.

Indeed, with life expectancies growing, many people may find their retirement savings will need to stretch further. According to the Guardian, the number of people aged 100 and over living in England and Wales in 2024 was almost double the number in 2002.

Understanding how far your pension could stretch can be complicated. Even if you have a clear view of your current pot, you might still be unsure of how far it will grow before and during retirement, how much tax you may need to pay, and what standard of living it could equate to.

In contrast, by being confident that you can draw a sustainable income throughout retirement, you can enjoy peace of mind and potentially more luxuries in early retirement.

Read on to learn how you could plan for a sustainable income in retirement.

Take advantage of tax-efficient options to boost your income

Generally, you will need to pay Income Tax when you draw down a portion of your defined contribution (DC) pension.

Typically, you can withdraw 25% of your pension pot tax-free as a lump sum. As of 2025/26, the maximum most people can take, also known as the lump sum allowance, is £268,275.

For withdrawals in excess of the lump sum, the rate of Income Tax you pay is determined by your total income – including your pension, State Pension payments, savings interest, and rental property income.

It’s often worth calculating your total annual income before drawing down from your pension, so you can avoid accidentally moving into a higher tax bracket.

As of 2025/26, earnings up to the Personal Allowance of £12,570 are tax-free. Afterwards, Income Tax is charged at the following rates:

• Basic rate (20%): £12,571 – £50,270
• Higher rate (40%): £50,271 – £125,140
• Additional rate (45%): Over £125,140

By taking some of your pension as a tax-free lump sum and spreading the rest out to stay within the basic-rate tax bracket, you may be able to boost your income by reducing your tax liability.

Keep unused pension funds invested to maximise your returns

Leaving as much as possible in your pension pot could help your funds grow further.

You do not need to take your full lump sum, and you can spread your tax-free amount over multiple payments if you wish. If you don’t need your full lump sum immediately, it might be worth leaving it in your pension to continue growing.

Typically, your pension funds are invested in a range of assets. The longer your funds remain in your pension, the more they could potentially grow. By entering drawdown, you can withdraw from your pension flexibly, whilst leaving the rest of your funds invested.

Consider purchasing an annuity for a guaranteed income

If securing a guaranteed income is a priority, you might opt to exchange some or all of your pension for an annuity.

Generally, annuities provide a regular income for the rest of your life, although some short- and fixed-term options are also available. Your income is calculated as a percentage of the value used to purchase the annuity, with the amount you receive determined by a few factors:

• The rate you agree when selecting the annuity
• The age at which you purchase the annuity
• Your health and life expectancy
• The type of annuity you choose
• Whether your annuity will continue to pay out to a spouse or dependant after your death.

You can opt to either have a consistent income throughout your retirement with a level annuity, or have your payments rise year-on-year. Whilst escalating annuities will increase by a fixed percentage each year, inflation-linked annuities will usually rise in line with the Retail Price Index.

For escalating and inflation-linked annuities, your starting income is generally lower than for level annuities. However, you receive some protection against inflation.

Whilst purchasing an annuity runs the risk of losing a large portion of your pension savings if you pass away early in retirement, they can provide peace of mind that you’ll receive a sustainable income throughout your lifetime.

Discover more about PenLife’s retirement planning services

Calculate your other income sources

In many cases, your DC pension won’t be your sole source of income. It’s important to have a clear view of all your income sources to ensure a sustainable retirement income, whilst calculating and managing your tax liability.

Most commonly, you might be eligible for the full new State Pension, which comes to £230.25 a week as of 2025/26. With the triple lock ensuring payments increase annually with the highest of inflation, average earnings growth, or 2.5%, BBC News forecasts that the full new State Pension will rise to £241.05 a week in April 2026.

You might also be able to draw income from other sources, such as savings, investments, or properties. As a result, you may need to draw less from your pension than you think to afford a comfortable retirement.

Keeping track of multiple income sources can be complex, particularly if they fluctuate over the years. By consulting with a Financial Planner, you can manage your income and plan to only draw down what you need from your pension, whilst avoiding moving into a higher tax bracket.

Get support with cashflow modelling

If you’re unsure about the sustainability of your retirement income, our Financial Planners can create a cashflow forecast to help you understand your financial position.

By taking your savings, investments, pensions, properties, and any other income sources into account, cashflow modelling applies assumed inflation rates and investment returns to estimate how much income you could receive in retirement.

Based on these calculations, we can recommend steps to help ensure you have a sustainable income in retirement. So, you can rest assured that you can enjoy the retirement you’re dreaming of.

To find out more about how we can help, please get in touch.

Email us at enquiries@pen-life.co.uk, or call 01904 661140.

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.

Workplace pensions are regulated by The Pensions Regulator.

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.