Most people are eligible for the State Pension once they reach the State Pension Age. This is currently 66, but will be 67 from 6th April this year and will rise to 68 by 2046. So if you want to retire before then, you need to create a plan for where your income is going to come from.
Check your company pension schemes
Some company schemes have a default retirement date that is earlier than the State Retirement Age and can be as soon as your 60th birthday. They should each send you an annual statement which usually includes an illustration of how much retirement income you could get.
- Defined benefit (DB) schemes are based on your salary and years of employment, so the figures quoted are pretty stable over time. They give you the option of taking a tax-free lump sum, but this reduces your annual payments.
- Defined contribution (DC) schemes rely on how much you and your employer contributes plus any growth. The illustration assumes you want to convert your savings to an annuity provided by the scheme administrator. This provides a guaranteed income for life in exchange for an upfront one-off payment. The figure quoted will be based on average lifespans and assumes a generally healthy lifestyle. Again, you can take a tax-free lump sum, but this will reduce the amount left to buy an annuity.
In either case you won’t know exactly how much you can rely on until you ask for an illustration from the provider. And for any DC schemes, it pays to shop around and not assume the default annuity is the best option.
- If you want your payments to increase each year or you want to leave an income for your spouse or civil partner, expect to be quoted a lower starting value.
- If you’re health impaired and you’re not likely to live as long as the average person of your age, you are generally offered a better annual payment as the money will be paid out over a shorter period of time.
You can also choose to keep your defined contribution schemes invested and take regular or one-off lump sums from each pot. If you take the tax-free lump sum all other withdrawals are fully taxable as income. If you don’t take the tax-free lump sum the first 25% of any withdrawal is free from income tax.
Finally, if any of your defined contribution schemes do not offer an early retirement date you could think about moving your savings to a different provider, but this might mean giving up some useful benefits like life insurance or guaranteed annuity rates.
Check your personal pensions
You can normally take benefits from your personal pension from the age of 55, although this is set to rise 57 in 2028 and could change again in the future. Like defined contribution schemes you should receive an annual statement and like defined contribution schemes there is flexibility in how you decide to use your savings. Some older schemes are not as flexible as newer ones so, again, it is worth thinking about moving to one that is better for your needs.
Consolidating all your defined contribution and personal pensions into one saving plan like a self-invested personal pension (SIPP) can make them easier to administer, and some of your older company schemes might be in default funds that no longer suit your situation and objectives.
By now you should have an idea of how much income you can generate from the ages of 60 and 55. But will it be enough?
How much will retirement cost you?
Try to imagine the kind of retirement you’d like to have and then work out how much it would cost you.
- What are your basic needs?
- How much you would like for luxuries, such as holidays, the theatre, and eating out?
- How much of a buffer will you feel comfortable having for emergencies or spontaneous spending?
- Do you want to make sure there is enough left over to leave an inheritance?
As a starting point, The Pensions and Lifetime Savings Association (PLSA) and the University of Leicester provide annual research on the cost of living in retirement. This can help you get a picture of how much your preferred lifestyle could cost. The figures don’t include mortgage or rent payments and reflect what you need to spend, not what you need to earn. The table below show’s the results of their most recent research:
| Lifestyle | Minimum | Moderate | Comfortable |
| Single person | £13,400 | £31,700 | £43,900 |
| Couple | £21,600 | £43,900 | £60,600 |
| What does it provide? | Your basic needs, with some left over for fun | More financial security and flexibility | More financial freedom and some luxuries |
Source: Pensions and Lifetime Savings Association – Retirement Living Standards 2025. Figures based on per-year spending.
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ISAs could be your retirement superheroes
Something many people forget, is the role ISAs can play in generating tax-efficient income in retirement. While you remain invested all capital growth and dividend income is free from tax. Accessing your ISA is straightforward, too. Any money you withdraw is also free from tax. This can provide a really useful boost.
What's the best ISA for planning an early retirement?
Over time, the government has introduced variations on the ISA theme but not all of them are appropriate when planning for your retirement.
The main two ISAs are the Stocks & Shares ISA and the Cash ISA
- Cash ISAs generally offer very low returns and shouldn’t be relied on for long-term growth. The government has also announced a plan to restrict the maximum you can save in a Cash ISA to £12,000 a year from 6th April 2027 (for under 65s).
- Holding a diversified portfolio of investments in a Stocks & Shares ISA offers a potentially faster route to success, although this comes with higher levels of risk. If you’re not confident choosing your own investments, investing in funds can be a great option, as this article explains, with options for all kinds of goals.
A Flexible Stocks & Shares ISA, like the one from Charles Stanley Direct, allows you to replace any money withdrawn from your ISA account without it affecting your annual ISA allowance. That’s providing you put the money back within the same tax year. This adds a layer of comfort if you find you need to draw on your savings earlier than planned. You can find out more about how flexible ISAs work in this article.
Junior ISAs are a good choice if you want to start building good habits from a young age. They can’t be touched until the account holder turns 18, but there are no guarantees that they will want to keep the account operating. But one can hope.
There’s also the Lifetime ISA or LISA. If you are between the ages of 18 and 40 the government will top up your contributions with an extra 25% tax free. It’s basically a bonus equivalent to the 20% standard rate tax rebate on a pension contribution. There are a few catches, however:
- You can only invest up to £4,000 each tax year (equivalent to £5,000 with the 25% government bonus).
- It’s included in your total £20,000 annual ISA allowance.
- You can only use the money as part of the deposit when you buy your first home, or you have to leave it until you’re 60 years old.
Again, you can choose between Cash Lifetime ISAs and Stocks & Shares Lifetime ISAs, which operate in the same was a mainstream ISA, but you have to bear in mind the restrictions listed above. Again, long-term investing is likely to yield better results than holding cash.
What’s the best way to use ISAs in retirement?
There are two ways an ISA or a Lifetime ISA could be part of your retirement strategy:
- You could take money just from your ISAs in the early years of your retirement and draw on your pension later. This leaves your pension savings invested for longer with the potential for improved income down the line. If you want to stop working completely before the age of 55, your ISAs and general investment accounts (GIAs) will have to cover almost all your needs. With recent reductions in capital gains and dividend income allowances, GIAs offer few opportunities to provide tax-efficient income.
- Once you reach 55 (or 57 from 2028) draw down small lump sums from your DC and personal pensions that take advantage of the 25% tax-free element. Topping these up with tax-free withdrawals from your ISA can minimise your total tax bill.
In the past, people have focused on using their ISAs for as much income as possible, leaving their pension savings alone for as long as they could. This was because private pensions didn’t form part of your estate when calculating IHT. But all this changed with the 2024 Autumn Budget and from April 2027, pensions will also fall into the IHT regime and will form part of your estate as equally as other assets and investments. If you die after the age of 75, there could be a double tax burden as any remaining pension savings have to be taken as taxed income, meaning the total tax take could be as high as 60% if the beneficiaries are higher rate taxpayers.
How useful is the Lifetime ISA when planning an early retirement?
Of all the different types of ISA, the Lifetime ISA is perhaps the least helpful when planning an early retirement. It will still provide useful income from the age of 60 but before that age, you will have to rely on your other savings.
Don’t forget inflation
The PLSA data revealed a shocking statistic: the cost of retirement increased by about 17.5% (and by between 8% and 38%) between 2024 and 2025; much higher than the official rate of 4% reported by the Office for National Statistics (ONS). Although it has slowed in the past 12 months, inflation for retirees is generally higher than for the “average” consumer. This is because retirees tend to spend more of their income on fuel, food and services which have all seen significant price rises in the past two years.
Although inflation is a key component of the New State Pension’s triple lock, it’s based on the ONS official rate, not your personal inflation number. This is something you really need to think about because you can no longer rely on salary increases, bonuses, or overtime payments to help boost your income. Or move to a better-paying job.
Where can I find help?
There are lots of variables to consider when planning retirement income at any age but self-funding your entire lifestyle is fraught with questions. How much will you need, how much should you take from where (and when) to make sure you have enough to live on throughout your third age.
Talking to a financial coach can help put you in control of your retirement strategy; or speak to someone who can help you put together a financial plan that gives you all the answers you need.
If the numbers still come up short all is not lost. Consider part-time retirement. Ask your employer if you can work fewer days per week. You could also look at contract positions or consulting that allow you to choose how much work you do, and when, and for whom.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
Flexible Stocks & Shares ISA
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