What income would a £250,000 pension pot give me?
Reaching retirement with a £250,000 pension pot is a great achievement. But how much income will it give you, and how can you make sure it lasts?
A £250,000 pension pot could generate an income of around £10,000 to £12,500, depending on your choices.
There are several ways to take your pension income, including buying an annuity, using income drawdown or uncrystallised funds pension lump sums (UFPLS) - each has different advantages.
A £250,000 pension pot should be enough for a fairly frugal lifestyle in retirement, assuming you’ve paid off your mortgage.
How can I calculate my retirement income?
If you have a £250,000 pension pot, then a rough rule of thumb is to base withdrawals on the ‘4% rule,’ where you withdraw 4% of your pot value each year.
This would give you an income of around £10,000 each year.
However, some experts believe that 4% is too conservative and that pension savers can afford to withdraw up to 5% each year, giving you a £12,500 income.
It’s worth getting some financial advice here, as the best withdrawal rate will depend on your circumstances and investment choices.
How to take your pension
There are several different ways you can take your retirement income, although you won’t be able to make withdrawals until you reach age 55, rising to 57 in April 2028.
Here are your main pension options:
| Ways to use your pension | How does it work? | How much could you get? | Pros | Cons |
|---|---|---|---|---|
| Tax-free lump sum | You can take the first 25% of your pension pot tax-free (without paying income tax). | 25% of your pension pot value. | You can use your lump sum to clear debt or for other purposes. | Taking your lump sum too early could affect your investment growth and eventual retirement wealth. |
| Annuity | You exchange all or part of your pension for a guaranteed income for life. | How much you get depends on the type of annuity. Level annuities (with no inflation increases) currently pay £7,672 for every £100,000 for a 65-year-old, according to Sharing Pensions, so you could get £19,180 for a £250,000 pension pot. | You get a guaranteed income, and you won’t have to worry about investment volatility. | You can’t reverse your decision, and there’ll be nothing to pass on to your children. |
| Income drawdown | You keep your pension invested and withdraw income as needed. | How much pension income you get depends on investment growth and your withdrawal rate. Taking 4% each year would give you an income of £12,000. | Drawdown is more flexible than an annuity and allows your pension pot to remain invested and grow with inflation. | Your pension will be affected by stock market volatility, and you must manage investment decisions. |
| UFPLS | You take a series of lump sums. Each lump sum has 25% tax-free and 75% taxable income. | Your pension remains invested, and how much you take each year is flexible. | You can tweak your withdrawals each year, and it’s possible to combine UFPLS with other options. | Making a decision each year can be complicated and takes forward planning. |
Is a pension pot of £250,000 enough to retire on?
The bottom line is that £250,000 is enough for a fairly frugal retirement but not enough for a life of luxury.
Assuming you’ve cleared your mortgage, Pensions UK estimate you need a total of £13,608 income for a frugal retirement and £36,483 for a moderately comfortable retirement lifestyle.
This includes the state pension, which is due to rise to £12,548 in April 2026.
With a pension pot of £250,000, you could have a total annual income of around £22,500 - that assumes you withdraw 4% from your pension each year (£10,000) and receive the full state pension.
What income would a £250,000 pension get me?
If you choose to invest your pension pot, the income you get depends on a variety of factors, including your investment growth and withdrawal rate.
A financial adviser can help you work out how much you can afford to withdraw so you don’t run out of money during retirement.
| Pension wealth at retirement | Pension income with 4% withdrawal rate | Pension income with 5% withdrawal rate |
|---|---|---|
| £100,000 | £4,000 | £5,000 |
| £250,000 | £10,000 | £12,500 |
| £500,000 | £20,000 | £25,000 |
How to build a £250,000 pension pot
Building a £250,000 portfolio takes patience and dedication, but it’s surprisingly achievable, especially if you have a long timeframe.
Starting young can help you harness the power of investing compounding, with your wealth snowballing over time.
Here’s how much you need to invest to reach £250,000 in today’s money by retirement. These figures are from Unbiased’s pension calculator.
How much do I need to invest for a pension pot worth £250,000?
| Time until retirement | Monthly pension contribution needed |
|---|---|
| 40 years | £325 |
| 30 years | £500 |
| 20 years | £850 |
How your private pension and state pension work together
Although the state pension isn’t generous, it’s a significant sum that’s guaranteed each year.
Added together with your private pension, it’s often enough to provide a decent retirement income.
If you want to retire early, then the bad news is that the state pension age is rising.
It’s currently age 66 and is increasing to 67 in stages between 2026 and 2028. In the future, it’s due to rise again to 68 between 2044 and 2046.
So, if you want to choose your retirement date, it’s essential to have enough stashed in your private pension.
A financial adviser can help you work out a plan to be able to retire when you want instead of waiting until the state pension age.
How to make your pension last longer
Making your pension last throughout retirement is a balancing act. You’ll want to withdraw enough income to enjoy life, but also make sure you don’t deplete your pot too quickly.
A simple option is buying an annuity with all or part of your pension pot. This way, you’ll get a guaranteed income for as long as you live.
If you do decide to stay invested, making the best investment choices is key.
If your pension pot keeps growing, you can keep making withdrawals throughout retirement.
Read more here about how to invest in retirement and how to think about risk when you’re investing.
Get expert financial advice
Once you get to retirement, you’ll want to make the right decisions with your hard-earned wealth.
It’s worth taking your time, as what you choose to do with your pension pot will be one of the most important financial decisions you ever make.
Using a financial adviser is worth considering for such a big decision.
Unbiased can help you find a financial adviser who can look at the whole financial picture and give you advice on which options are best for you. They can also help you decide how to invest, how much to withdraw and how to make the most of your retirement wealth.
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