Rethinking retirement: it’s not a hard stop
For many people today, retirement isn’t a sudden stop but a gradual shift. The idea of leaving work on a Friday and waking up fully retired on Monday is becoming less common. Instead, more people are easing into retirement by reducing their hours, taking consultancy roles, or pursuing part-time or freelance work. This phased approach not only helps mentally and emotionally with the transition, but also offers financial benefits.
A continued salary, even part-time, can significantly reduce the need to draw on pensions or savings too early. It allows for a smoother adjustment to a new lifestyle and gives your retirement investments more time to grow. If you’re considering a phased retirement, it’s important to factor this income into your broader planning, including how it affects your tax position and any pension contributions you might still make.
Essential vs discretionary spending: know your numbers
A fundamental step in planning for retirement is to understand your expected expenses. Without this, it’s impossible to answer the core question: how much income will you actually need?
Essential spending refers to your non-negotiable, recurring expenses. These are the costs you must cover to maintain a basic standard of living:
- Housing costs such as mortgage payments, rent, or maintenance on an owned property
- Council tax, utility bills, and insurance (home, contents, car)
- Food and household essentials
- Transport and fuel
Discretionary spending, on the other hand, is where your lifestyle choices come in:
- Holidays and travel, whether short breaks or longer adventures
- Hobbies, club memberships, and subscriptions
- Dining out, entertainment, and leisure activities
- Gifts, charitable donations, and support for children or grandchildren
While essential costs tend to remain relatively stable, discretionary spending often varies—especially in early retirement when people are more active. Having a clear budget helps avoid underestimating or overspending and forms the basis of your sustainable income plan.
Before retirement, it’s useful to track your current expenses using budgeting tools or apps. This helps you see where your money goes and identify any areas where spending could change post-retirement.
Build your base: guaranteed income for essentials
One of the best ways to ensure your essential costs are always covered is to match them with guaranteed income sources—those that are reliable and not subject to market fluctuations.
The State Pension is the cornerstone of most retirement plans. In 2025/26, the full new State Pension is over £11,500 a year, rising annually under the ‘triple lock’. For those with sufficient National Insurance contributions, it provides a valuable, inflation-linked income for life.
Defined Benefit (DB) pensions—common in the public sector and some large employers—offer a secure, often inflation-adjusted income for life, based on your salary and years of service. These schemes remove investment risk and provide peace of mind.
Annuities convert pension savings into a guaranteed income for life or a set term. While they have become less popular due to low interest rates and the rise of drawdown, they still play a role for those seeking certainty, especially later in retirement or for covering fixed costs.
Rental income, when reliable and well-managed, can also provide steady income. However, it comes with property maintenance responsibilities, market risk, and potential void periods.
Continued earnings—through part-time or consultancy work—can also be counted as a form of guaranteed income, particularly in the early years of retirement. These earnings help delay drawing from pensions or other investments, preserving them for future use.
By ensuring your essential needs are covered by these dependable income sources, you’re better positioned to use your flexible assets for lifestyle choices and larger goals.
Flexible income: the engine of lifestyle spending
Once your essential costs are covered, you can use flexible income sources to fund discretionary spending, special projects, or unexpected events. These are typically assets you have more control over—how and when you access them.
Key sources include:
- Pension drawdown, where you leave your pension invested and withdraw as needed
- ISAs, offering tax-free withdrawals and no income tax implications
- General investment accounts, subject to capital gains and dividend tax
- Cash savings, useful for short-term or emergency needs
- Part-time income, where relevant
The big advantage here is flexibility. You can tailor withdrawals year by year depending on your needs and market conditions. This also allows for tax-efficient planning—for example, drawing from ISAs in years where taxable income is high, or using your personal allowance and dividend allowance strategically.
However, flexibility comes with risk. Drawing too much too soon can lead to running out of money later. Market downturns early in retirement—when you’re starting to draw income—can magnify this risk (known as sequence of returns risk).
That’s why your flexible income strategy should be carefully modelled and regularly reviewed.
Visualise your future with cashflow planning
Cashflow planning is a vital part of creating a sustainable retirement income strategy. It uses financial modelling to forecast your income, spending, assets and liabilities year by year throughout retirement.
A professional cashflow model helps you:
- See when and how each income source will kick in or fall away
- Identify any shortfalls or gaps in future years
- Understand how big one-off purchases (e.g. new car, big holiday) will affect your finances
- Test different scenarios (e.g. early death, poor investment returns, care costs)
For many clients, it’s the moment everything clicks: seeing their financial future mapped out visually brings clarity, removes uncertainty and often leads to better decision-making.
It’s also a great tool for exploring ‘what ifs’—what if you downsize? What if you gift £30,000 to your children? What if inflation rises sharply? With expert advice, these models can be adjusted to reflect your personal values and life goals.
Inflation: the silent threat to your retirement income
Inflation may seem modest year to year, but over time, it significantly erodes purchasing power. For example, a retirement income of £30,000 today would need to rise to over £50,000 in 25 years to maintain the same lifestyle at 2.5% annual inflation.
Yet not all retirement income rises with inflation. State Pensions are linked to inflation through the triple lock, but some annuities often offer only level payments unless you pay a premium for inflation protection. Some older DB pensions may have limited or no inflation linkage.
Other assets like investments can help offset inflation, particularly when a portion of your portfolio is held in growth assets like equities. However, this introduces volatility and requires a suitable risk level for your personal situation.
Regular reviews allow you to adjust your withdrawals and portfolio mix in response to inflationary pressures.
Longevity: will your money last as long as you do?
One of the biggest risks in retirement is outliving your money. With life expectancy rising, it’s entirely possible to spend 30 or more years in retirement.
A common mistake is underestimating how long you’ll live. Planning only to age 85 when you live to 95 can leave you short of funds when you need them most. A good retirement plan assumes a realistic and sometimes conservative lifespan—often to age 90 or beyond.
Longevity also brings increased healthcare and potential social care needs. Setting aside contingency funds or considering later-life products like care annuities or equity release can add protection.
Cashflow planning, again, helps test your plan under longer-life scenarios and ensures your strategy remains robust.
Don’t forget the big expenses
Day-to-day income planning is important, but so is preparing for significant one-off expenses. These might include:
- A once-in-a-lifetime holiday or round-the-world cruise
- Helping your children with a house deposit or wedding
- Renovating your home or adapting it for later life
- Buying a new car or caravan
- Moving to a new area or downsizing
These costs can be planned for using a “bucket” strategy—dividing your assets into short-, medium- and long-term pots. That way, your long-term investments can remain untouched until needed, while you draw from cash or short-term funds for upcoming costs.
Being realistic about these larger expenses—and building them into your retirement plan—prevents them from derailing your overall strategy.
All income sources matter
When building your retirement income plan, think beyond pensions. Other valuable sources include:
- ISAs, which allow tax-free withdrawals and offer flexibility
- Equity release, which lets you unlock value from your home later in life
- Downsizing, which can release capital and reduce ongoing costs
- Business income, for those running lifestyle ventures or consulting
- Inheritance, though unpredictable, can impact how you draw other income
Blending multiple sources gives your plan resilience and increases your ability to adapt. It also opens up more tax planning opportunities, such as drawing from ISAs before pensions to save on income tax, or using capital gains allowances efficiently.
Reviews keep your plan on track
Your retirement income strategy isn’t set-and-forget. Regular reviews—at least annually—ensure your plan stays relevant as life evolves.
Key reasons to review include:
- Changes in spending patterns, lifestyle, or family circumstances
- Shifts in market conditions or interest rates
- Updated tax rules or pension legislation
- Rebalancing investments to manage risk
These reviews also give you the opportunity to revisit your goals, adjust for inflation, and spot potential shortfalls early.
Working with a financial adviser helps you interpret what the numbers mean and make decisions with confidence.
Get expert help to plan with confidence
Knowing how much income you’ll need in retirement—and how to create a strategy that delivers it—can feel overwhelming. But you don’t have to do it alone.
At Chilvester, our retirement planning specialists in Chippenham, Newbury, and Bristol can help you:
- Clarify your spending needs, now and in the future
- Identify all your income sources and how to use them tax-efficiently
- Build a personalised retirement income strategy
- Use cashflow modelling to visualise your plan
- Make adjustments with confidence as life changes
Summary: How much income do I need in retirement?
Creating a retirement income plan starts with knowing what you need—and how to deliver it sustainably.
- Understand your essential and lifestyle spending
- Use guaranteed income to cover basics
- Draw from flexible assets for choice and control
- Protect your plan from inflation and the risk of outliving your money
- Plan for the big life moments
- Blend all income sources to your advantage
- Review regularly to stay on course
Want clarity and confidence in your retirement planning? Book a consultation with Chilvester today and let us help you build a lasting, flexible income strategy tailored to you.
