One of the reasons why retirement planning can feel so challenging is that it always involves a degree of uncertainty: you don’t know exactly how long it will last.
As life expectancy increases, so too does the risk of running out of money later in life. The Department for Work and Pensions (DWP) estimates that 15 million working-age people aren’t saving enough for their retirement.
Here, we explain how you can navigate some common pitfalls and futureproof your retirement finances.
1. Combat inflation
When we surveyed 1,741 retirees in October 2025 about what has had the biggest negative impact on their finances, the effect of inflation came top of the list, with half the respondents citing it as a problem.
Inflation can prove particularly pernicious for retirees, as it erodes the purchasing power of their savings and puts a strain on fixed incomes.
Most people retiring today have defined contribution schemes, where your retirement income depends on how much you’ve saved and how you decide to access your savings.
If you then opt for the guaranteed income of an annuity, you can choose between payments that remain fixed each year (level) or that increase over time (index-linked). With index-linked annuities, payments start off at a much lower level than with a level annuity.
For example, a 65-year-old with a pot of £100,000 could get a starting income of £5,205 with an index-linked single-life annuity, or £7,649 from a level annuity. This might explain why index-linked annuities are a much less popular option, but if you’re in good health and likely to enjoy a long retirement, it’s a decision that could pay off in the long run.
The state pension has built-in inflation protection thanks to the triple-lock guarantee. Payments rise each year by the highest of three measures: the rate of inflation (as of the previous September), average earnings growth (as of the previous July) or 2.5%. Increases have surpassed inflation in seven of the past 10 years.
- Find out more: best annuity rates 2026
2. Manage withdrawals carefully
While buying an annuity gives you certainty over your retirement income, it doesn’t give you the flexibility to vary this income. That’s why many retirees choose to combine an annuity with pension drawdown, where you leave your pot invested and make withdrawals when you need to.
But with flexibility comes the risk that your investments could fall in value – and it’s your responsibility to take money out at a sustainable rate.
The ‘4% rule’ has often been used to help with this. Originally devised by American financial planner William Bengen in 1994, it suggests that to make sure your pot lasts over a 30-year retirement, you should withdraw 4% of your pension in the first year, then take the same amount each year adjusted for inflation.
With a starting pot of £250,000, and assuming annual investment growth of 5% (after charges), you’d end up with £86,000 after 30 years by withdrawing 4% initially and increasing your withdrawal by 3% each year for inflation.
If you reduced your initial withdrawal to 3%, the amount you’d be left with would rise to £334,000. If you increased it to 5%, you’d run out of money in year 25.
The ‘right’ withdrawal rate for you will depend on several factors, including your spending needs and how well your investments perform. You’ll likely need to vary the amount you take out each year to reflect changing circumstances.
3. Anticipate changing spending patterns
Spending in retirement will ebb and flow. You’re likely to spend more in the early years of your retirement, although the pattern might be a ‘U’ shape if you have to meet healthcare and long-term care expenses in the later stages.
Research from the Institute for Fiscal Studies (IFS) indicates that households with above-average incomes for their age spend more in their 60s and early 70s, before spending falls at around age 75.
The IFS found that the amount spent on food inside the home and on motoring falls steadily during retirement, while expenditure on holidays increases up to age 80 and then drops back.
Spending on household services, which includes home help and domestic cleaning, rises in the later years of retirement.
- Find out more: how much will l need to retire?
4. Minimise the tax you pay
Some 8.7 million people of state age pension or older are projected to pay income tax on their retirement savings in 2025-26. That’s an increase of 1.9 million compared with 10 years ago.
That number is set to rise further in the years ahead, as the freeze on income tax bands – in place since 2022 – has been extended until April 2031. This has created ‘fiscal drag’, where people are pushed into higher tax bands as their income rises.
You can take up to 25% of your pension as a tax-free lump sum (up to a maximum of £268,275 across all your pensions), but anything above that will be added to the rest of your income and taxed in the same way.
You’ll pay tax on income above your personal allowance of £12,570. The state pension is likely to use up most of this, as it’s worth £11,973 at its full level, rising to £12,548 from April.
The government has confirmed that people whose only income is the state pension won’t have to pay income tax for the duration of this Parliament, even when it eventually exceeds the personal allowance.
Bear in mind that a large withdrawal from your pension can push you into a higher tax bracket. If you live in England, Wales or Northern Ireland, higher-rate tax begins at £50,271, so you’ll pay 40% on income above that. In Scotland, you’ll pay the higher rate (42%) on income above £43,663.
- Find out more: pension tax calculator
5. Prepare for financial shocks
A fifth of retirees in our survey told us that having to pay for private healthcare to access treatment had negatively affected their finances.
Some respondents also said they were worried about the prospect of having to meet the cost of residential care. You’ll be eligible for financial help from your local council only if the value of all your savings and assets falls below a threshold, known as the upper capital limit. This is £23,250 in England and Northern Ireland, £35,000 in Scotland and £50,000 in Wales.
Unexpected expenses, such as emergency repairs on your property or the need to replace a vehicle, could also leave a dent in your finances. These one-off costs should be covered as part of your financial plan where possible.
One Which? member (83) provided some advice: ‘There are many unforeseen expenditures as you age. Old age can be very expensive when one has to pay for all the things that one used to take for granted, such as having one’s toenails cut, ear wax removal, gardeners, taxis and so on. Make sure that you keep a cushion in reserve for the unexpected, and do not go on a spending spree when newly retired.’
- Find out more: care home costs