How Much Can You Afford to Take From Your Pension Each Year?

One of the most common questions people ask as they approach retirement is: “How much can I afford to take from my pension each year?”

It’s an important question. Withdraw too much, and you risk running out of money later in life. Withdraw too little, and you may unnecessarily limit the lifestyle you’ve worked so hard to achieve.

So, is there a simple answer to finding the right balance?

What Morningstar’s Research Found

We were interested to see Morningstar recently publish its 2026 research into UK retirement withdrawal rates, so we thought it was worth digging into the findings. Rather than looking at one withdrawal rate in isolation, the research compared a range of different withdrawal strategies and investment approaches to see how they could affect retirement outcomes.

We found the results particularly interesting because they demonstrate the trade-offs involved. A strategy that provides a higher or more consistent income, for example, may come at the expense of flexibility or the amount left in your portfolio later in retirement.

Their starting point was the well-known ‘4% rule’. This suggests that a retiree could withdraw 4% of their portfolio in the first year of retirement, increase that amount each year in line with inflation, and have a high probability of their money lasting 30 years.

For example, if you retired with a pension worth £500,000, this would suggest an initial annual income of around £20,000.

Morningstar’s research arrived at a similar starting figure of 4.1%, based on a 30-year retirement and a 90% probability of having money remaining at the end of that period. However, what we found particularly interesting was the investment strategy required to support this approach.

The highest starting withdrawal rate in Morningstar’s research was achieved with a very defensive portfolio, holding just 30% in equities. This is because maintaining a consistent, inflation-adjusted income each year places greater emphasis on limiting volatility and reducing the risk of significant investment losses, particularly during the early years of retirement. Falls in the value of your pension in those early years can be harder to recover from than falls later on, simply because you’re drawing an income from it at the same time.

But solving one problem can create another. A more defensive portfolio may help provide greater stability, but it can also limit the potential for long-term investment growth and, in turn, the amount of money available throughout retirement.

This highlights one of the limitations of relying on a fixed withdrawal rule. A strategy designed primarily around maintaining a particular level of income may not necessarily provide the best outcome for every retiree, particularly where long-term growth, flexibility or leaving money behind are also important objectives. It’s also worth remembering that the length of your retirement matters too. Someone retiring in their 60s may need their income to last considerably longer than someone retiring in their 80s.

What about a more flexible approach?

One of the most valuable insights from Morningstar’s research is that flexibility can make a real difference.

Alongside the fixed withdrawal approach, Morningstar tested eight more flexible strategies, where the amount withdrawn could change over time rather than automatically increasing with inflation each year. Every flexible strategy tested supported a higher starting withdrawal rate than the fixed approach, although this comes with greater variation in income from one year to the next.

Some of the approaches considered included:

• Using guardrails: withdrawals can increase following strong investment performance but are reduced if the amount being withdrawn becomes too high relative to the value of the portfolio.
• Taking a constant percentage: rather than increasing a fixed amount with inflation, the retiree takes a percentage of the portfolio’s current value each year. Income therefore rises and falls with the value of the investments.
• Forgoing an inflation increase following a poor investment year: where income is not necessarily cut, but the usual inflationary increase is skipped following a year in which the portfolio has fallen.
• Holding a cash wedge: keeping a portion of your portfolio in cash can help fund withdrawals during periods of market weakness, reducing the need to sell investments when their value has fallen.

In practice, retirement spending is unlikely to fit neatly into the same pattern every year. Retirement can last for several decades, and your income needs may change considerably over that time.

Some clients want to spend more during the early, more active years of retirement, perhaps on travelling and new experiences, while later years may bring different priorities. Others are looking to ‘bridge the gap’ for a period before their State Pension or a defined benefit pension comes into payment. While others might want to make larger one-off withdrawals for a holiday, new car or to help family.

These examples show why a retirement income plan does not necessarily need to provide the same level of withdrawals throughout retirement. Being willing to adjust withdrawals as your needs and circumstances change can therefore be an important part of retirement planning.

This doesn’t mean reacting to every movement in financial markets. Instead, regularly reviewing your income, investments and wider financial position can help ensure that the amount you’re withdrawing continues to reflect what you actually need from your retirement.

Why there isn’t a single “safe” withdrawal rate

Ultimately, deciding how much to take from your pension is about more than finding the “right” withdrawal percentage.

The amount you can comfortably withdraw depends on a range of factors, including:

• Your age when you retire.
• How long your retirement is likely to last.
• Your lifestyle and spending requirements.
• Other sources of income, such as the State Pension or defined benefit pensions.
• Your attitude to investment risk.
• Whether leaving money to your family forms part of your long-term plans.

This is why retirement income should be viewed as part of your wider financial plan. Rather than choosing a withdrawal percentage in isolation, good financial planning can help you consider how much income you need, when you need it, what other income you have available and how your investments are structured.

Through careful planning and modelling, we can understand how different spending patterns and investment scenarios could affect your finances over the course of retirement. Rather than relying on a general rule of thumb, this allows the conversation to focus on whether your own plans appear sustainable and what adjustments might be needed along the way. The plan can also be reviewed regularly, allowing it to adapt as your circumstances, spending needs and investments change.

With retirement potentially lasting 20 or 30 years or more, taking the time to build a sustainable income plan can be just as important as building your pension in the first place.

There may not be one “safe” withdrawal rate for everyone, but with careful planning and regular reviews, your retirement income can be managed around the life you want to live.

This article is for general information only and does not constitute personalised financial advice. The right approach to retirement income will depend on your individual circumstances. If you would like to discuss your retirement plans and how we can help you plan for the future, please get in touch with us.

Source: Morningstar, The State of Retirement Income UK 2026