I’m 65 with £180k in savings and want to retire next year – how much monthly income can I get?

I have no dependents and have paid off my mortgage. I am now 65 and hope to retire next year when I will receive a full state pension as well as an NHS pension of around £4,000 per year.

I currently have £180,000 in savings – mainly cash Isas and premium bonds.

How can I get a monthly payout from this without eating too much into my savings pot, and what is the best way to make sure that my money is safe?

What can I do to make sure that I can have as comfortable retirement as possible. E.C, via email.


Set a budget: Calculating how much you need to live the life that you want can help you to plan your reitrement

Set a budget: Calculating how much you need to live the life that you want can help you to plan your reitrement

Harvey Dorset, of This is Money, replies: To ensure you can have a comfortable retirement, you first need to establish what that will look like.

What you deem a ‘comfortable’ retirement will differ from others, depending on your circumstances and expectations. 

So the first thing to do is to work out how much money you need to fund the lifestyle you are hoping to lead.

To do this, you can use This is Money’s budgeting tool, or simply go old school with pen and paper. 

Regardless, the aim is to set out your finances in full, to allow you to see where you will be able to cut back, and where you can afford to spend.

If you think that your state and NHS pensions will meet your requirements, then you are all set. 

However, as seems to be the case, if you think you will need to add to your pension income in order to be comfortable, then there are a number of ways to go about this.

On one hand, you can cut back on some luxuries that you don’t think you need. 

But, if you are set on living the life you want to live, then there might be other options that let you make more of the money that you have.

For example, opening a stocks and shares Isa will open you to higher returns from your savings, which could help you to make up the shortfall in your income, but at the expense of taking on more risk.

Given your route so far avoids investing, it seems that you are very risk averse, as returns on investing are not guaranteed like they are with cash savings. 

At the very least you should ensure your money is in the best possible savings accounts, check This is Money’s independent best buy saving tables for these. 

This is Money spoke to two financial advisers about what the best way is for to you to go about funding your retirement.

Reallocation: Chris Peters suggests moving premium bods into an Isa for a regular income

Reallocation: Chris Peters suggests moving premium bods into an Isa for a regular income

Chris Peters, Independent Financial Adviser at Flying Colours replies: When considering your monthly income, it’s crucial to pinpoint exactly how much you’ll need on top of your pensions.

Start by calculating your monthly lifestyle expenses minus your NHS and state pension income to arrive at an accurate figure. 

This figure serves as a reference point when assessing interest earned on your savings: if your monthly income requirement is below the interest received, you can sustain your income without depleting your capital.

Regarding personal tax implications, you’ll be subject to income tax at your marginal rate once your income surpasses the personal allowance of £12,570 in the 2024/25 tax year. 

Since your combined income from NHS and state pensions exceeds this allowance, you’ll pay basic rate tax.

As a basic rate taxpayer, you’re entitled to a personal savings allowance (PSA) allowing you to earn £1,000 in savings interest annually tax-free. 

The good news is that most of your savings are held in tax-free accounts like cash Isas and premium bonds, which don’t count towards your PSA.

Tip: Verify that interest on your other savings remains below the PSA to avoid income tax liability. If you anticipate exceeding the PSA, consider utilising your Isa allowance, currently £20,000 for the 2024/25 tax year.

To generate monthly income, you can rely on the interest from your cash Isa, payable monthly. 

More from our financial planning series

However, premium bond prizes fluctuate, making them an unreliable source of regular income. 

Consider reallocating your premium bonds to a National Savings & Investments (NS&I) Isa for a steady monthly income, making use of your Isa allowance. 

NS&I, backed by HM Treasury, offers a secure option with no limits on protected savings.

If there’s an income shortfall, utilise your Isa allowance yearly and transfer other savings to a cash Isa. 

Additionally, if you’re comfortable with investing in equities, consider stocks and shares Isas for potentially better long-term growth. 

However, be prepared to invest for at least five years and tolerate fluctuations in value. If uncertainty or short-term commitment is a concern, cash Isas might be preferable.

Alternatively, you could consider purchasing a Purchased Life Annuity (PLA) with part or all of the proceeds of your premium bonds. 

The advantage of a PLA is that the capital element, which is a return of part of the original capital used to purchase the annuity, is free from tax. 

Any interest from the PLA is taxed as savings income and is paid net of basic rate tax.

To safeguard your funds, ensure your savings don’t exceed £85,000 per UK-authorised bank or building society. 

For joint accounts, the limit is £170,000. Verify your bank’s protection status using the Financial Services Compensation Scheme (FSCS) checker, especially if your savings are spread across banks within a larger group.

Steps to ensure a comfortable retirement:

1. Maintain at least 6 months’ worth of total expenditure as emergency cash, easily accessible without penalties.

2. Plan for future financial needs alongside monthly income requirements, including one-off capital expenditures like home renovations or special trips.

3. Regularly review your finances to explore better interest rates and consider switching providers.

4. Explore the Government’s Money Helper website for impartial guidance on savings and retirement.

Ray Black, chartered financial planner and managing director of Money Minder Financial Services, replies: Having paid off your mortgage prior to your retirement is obviously a huge advantage, especially now that mortgage costs have risen so much over the past couple of years. 

The first step to a comfortable and enjoyable retirement is to work out what your income needs are. 

This should be based on the retirement lifestyle that you wish to enjoy and should take account of your basic survival costs first and then moving on to how much the ‘fun stuff’ will cost like weekends away, holidays, days out and your hobbies.

To do this I’d recommend completing the self-calculating budget calculator which is available for you to use free of charge on our website.

Safe haven: Ray Black advises that you only keep up to £85,000 in any bank account to ensure that it is safe

Safe haven: Ray Black advises that you only keep up to £85,000 in any bank account to ensure that it is safe 

Cash flow modelling for a satisfying retirement 

On the same page, you’ll also find a video that explains the advantage of cash flow forecasting/modelling. 

We have been completing cash flow forecasts with our clients for over 20 years and can say with the utmost confidence that it is one of the most beneficial processes to work through as you get closer to retirement. 

In my opinion, the main objective of cash flow modelling/forecasting is to answer a very important question that is so often overlooked as its rarely verbalised, even though it’s in the back of many retirees’ minds. 

The main question to try to get an answer to is ‘am I likely to run money out of money before I run out of life?’ 

Once you have a good grasp of the answer to that question, you’ll then be able to adjust your retirement spending up or down dependent on your results.

This process will also help you to determine how much additional income you may need on top of your state and NHS pensions. 

For instance, if your monthly expenses are £2,000 your pensions cover £1,235 (£285 month net of income tax from the NHS pension and approximately £950 gross from the state pension).

This leaves a shortfall of around £765 per month, however, with a large amount of savings to call on, currently held in Isa’s and NS&I Premium Bonds, to cover this shortfall you would need to be drawing down around 5 per cent of your savings each year to support your retirement income needs. 

As you are already in tax efficient savings accounts, this income shouldn’t incur a large income tax liability for you. 

To keep access to the capital as well as using it to generate the income you need is not over demanding at present now that interest rate returns of between 4 per cent and 5 per cent are readily available.

To ensure that the money is ‘safe’ try not to have exposure of more that £85,000 in any one bank or building society. 

The main risk with keeping all your money in cash accounts and NS&I Premium Bonds is that the capital value of your savings won’t keep up with inflation over the longer term, especially if you need to draw down all of the interest to meet your monthly income needs.

How to potentially match or beat inflation and enjoy some capital growth over the long term

To have the potential of matching or beating inflation, you may need to consider converting some of your cash Isas to investment Isas, however, this now brings investment risk that you should discuss in depth with an independent financial adviser to ensure that you are comfortable with this. 

As you’ll be aware, the value of investments can fall as well as rise, however, there are also specific investment strategies that you could consider such as investing in income producing shares in large UK based blue chip companies and corporate bonds.

Generally speaking, these types of investments have provided higher returns than cash over the longer term and may be able to provide you both a tax efficient income and capital growth to help to ensure that you won’t run out of money before you run out of life!

Get your financial planning question answered 

Financial planning can help you grow your wealth and ensure your finances are as tax efficient as possible.

A key driver for many people is investing for or in retirement, tax planning and inheritance.

If you have a financial planning or advice question, our experts can help answer it. 

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