Can you still afford to retire in 2026?
From high interest rates and inflation to tax changes, there are plenty of factors to consider if you plan to retire in 2026 – here is how to prepare.
Retirement living costs are on the rise and interest rates remain high, raising new questions for anyone who was planning to retire this year.
Many people will have started 2026 with plans to enter their golden years.
But factors such as the Iran war have created new economic uncertainties and market volatility, especially for those planning to access their pension.
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Meanwhile new Retirement Living Standards data from Pensions UK shows the cost of a comfortable retirement has increased from £43,900 in 2025 for a single person to £45,400 this year, while couples require £62,700 compared with £60,600 previously.
This makes it all the more important to ensure you maximise your pension and withdraw funds in the most effective way.
The Iran war has pushed up swap rates and gilt yields, keeping annuity rates high.
This is good for those looking to use their pension to purchase an annuity and lock in a fixed income to help fund their retirement in recent years.
But the attraction of annuities could be depleted if interest rates fall.
In contrast, staying invested in the stock market and using drawdown to access your pension pot also has risks, with geopolitical tensions remaining, and concerns about UK economic growth weighing on financial markets.
Chancellor Rachel Reeves’s fiscal plans have also put a spanner in the works of many people's retirement plans.
Pensions are set to form part of an estate for inheritance tax purposes from April 2027. Furthermore, tax rates on dividend and property income increased in April 2026, adding costs to other forms of income such as shares and buy-to-lets.
Plus, from April 2029 the amount of pension contributions that will be exempt from national insurance will be capped at £2,000 each year, reducing some of the tax benefits of saving through a workplace pension.
We consider the factors that are making 2026 and beyond a good or bad year to retire.
How much do you need to retire?
For a comfortable retirement, single retirees need a typical income of £45,400, while couples need a combined £62,700, according to Pensions UK.
Analysis by Quilter suggests a single person would need a pension pot worth £691,000 to buy an annuity with enough income for a comfortable retirement, or £778,000 for a couple. There may be other sources of income that can help such as the state pension or a buy-to-let portfolio. The difficulty is that no one knows how long they will be retired.
Robert Cochran, pension expert at Scottish Widows, suggests downloading the app of your pension provider for any private or workplace schemes you're in and also check your state pension forecast to see if you are on track to get the level of income in retirement that you are hoping for.
Track down lost pots
There may be a lost pension pot waiting for you if you have changed jobs throughout your career.This could boost your pension savings and ultimately your retirement income.
Use the government’s free pension tracing service and find any lost pots with your name on.
You just need to provide the name of your employer or the pension scheme and the tracing service will tell you how to contact them.
Make use of the state pension
Pensioners' incomes have already been boosted by a rise in the state pension since the start of the new tax year in April thanks to the triple lock.
The state pension rose by 4.8% in April 2026, taking the full new state pension to £241.30 per week or £12,547.60 a year.
Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, said this is a welcome increase but will bring a full new state pension just a whisker under the threshold for paying basic rate tax.
She said: “It’s expected to breach that threshold in 2027. Frozen tax thresholds mean that more and more pensioners are being drawn into paying more tax on their income over time. You can try and mitigate this by making use of ISAs alongside your pension to manage your tax bill.”
In some good news, the chancellor has said people whose sole income is the state pension won’t pay tax on it for the remainder of this Parliament.
But James Norton, head of retirement and investments at investment company Vanguard Europe, warns against solely relying on state support, saying it is important to have private pension savings.
He suggests sense-checking your expectations to understand how much money you will need in retirement while accounting for inflation.
But you should also be flexible with your expectations and regularly review your savings, Norton said.
He added: “Ultimately, being ready to retire comes down to having a clear, adaptable plan for how your savings will work for you, not just on day one of retirement, but throughout the years that follow. It’s a financial choice that needs careful planning and, for many, adjusting expectations or timelines slightly could make the difference between a retirement that feels financially secure and one that feels tight.”
Should you consider an annuity or dabble with drawdown?
Annuities have long been ignored by retirees due to poor rates, but as interest rates and gilt yields have increased this year amid the Iran conflict, annuity rates have looked more attractive.
The latest data from Hargreaves Lansdown’s annuity search portal shows a 65-year-old with £100,000 can get up to £7,970 per year from a single life level annuity with a five-year guarantee.
Morrissey added: “Different providers offer different rates and over the course of your retirement this could amount to thousands of pounds in income.
“It’s also important to say you don’t have to annuitise all your pension all at once. You can do it in slices and keep the rest invested in income drawdown where it has the potential to grow further – you can then annuitise in slices as time goes on and your need for guaranteed income changes.”
Alternatively, you could opt for the flexibility of drawdown – where you stay invested and make withdrawals as you wish.
Cochran said: “If you’re 55, you can start taking your pension flexibly and up to 25% tax-free.
“Doing this gives you flexibility over what to do with your retirement savings - taking what you need, when you need it. However, it’s important to remember that your investments can go down in value as well as up and that depending on how you access your savings, the Money Purchase Annual Allowance may apply.”
This then raises the question of how much you should withdraw from your pension. Many follow the 4% rule as a stable level of income that increases with inflation to cover their spending year-to-year. But some analysts suggest the 4% rule is too high.
Some individuals have income from multiple sources, such as rental income, so may see no benefit in an annuity. Drawdown has risks though, as your pension pot may run out if you withdraw too much and stock market volatility may reduce its value.
Norton says: “For the majority of people, a degree of certainty around retirement income is key. While some may find the state pension to be sufficient, others might want to top that up with an annuity which would mean they can cover their basic expenses through guaranteed sources, while discretionary spending, gifting, and luxuries could come out of a drawdown pot.”
Pensions and inheritance tax
Pensions will no longer be exempt from an estate for inheritance tax purposes from April 2027. This potentially pushes up the inheritance tax bill for more wealthy individuals. The change means retirees with money they want to pass on may have to reconsider how they do it now.
Norton adds: "Investors should remember that pensions are primarily a tool for building up an amount of money to fund retirement. Not only are they tax-efficient to contribute to, but once the money is within the pension wrapper it can grow free of income and capital gains tax. Pensions will always be a critical component of a long-term savings plan.”
Should you trust in buy-to-let?
Should you trust in buy-to-let?
Another retirement option is buy-to-let.
Investing in the property market has traditionally been seen as a viable option for people to fund their retirement. Buy-to-let landlords have benefited from low levels of supply and record high rents in recent years. But rental growth has been slowing amid reduced demand as many tenants are able to afford to get on the property ladder while remaining renters can't afford to pay high rents.
Many landlords are also exiting the sector due to restrictions on tax reliefs, higher stamp duty and new regulations under the Renters' Rights Act. Higher buy-to-let mortgage rates may also hit property investing profits.
The key factor, whatever way you are funding your retirement, is planning.
“The plans we build for our clients makes the assumption that the year they retire will be a ‘difficult’ one, i.e. they will retire in the middle of a stock market crash or some other crisis,” says Ross Lacey, director at Fairview Financial Management.
“Using this kind of approach means we have an all-weather strategy for dealing with external factors outside of anybody's control, and our clients have more confidence they can still do what they want.”
