Can you afford to retire in 2026?

From potential interest rate cuts to high inflation and stock market volatility, there is plenty to consider if you want 2026 to be the year you finally retire.

Retirement living costs are on the rise, making it all the more important to ensure you maximise your pension.

High interest rates have provided a boost for people choosing to use their pension to purchase an annuity to help fund their retirement in recent years.

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But the attraction of annuities could be depleted, with interest rates expected to fall further during 2026.

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, with pensions set to form part of an estate for inheritance tax purposes from April 2027. Furthermore, tax rates on dividend and property income are rising in April 2026, adding costs to other forms of income such as shares and buy-to-lets.

We consider the factors that could make 2026 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 £43,900, while couples need £60,600, according to Pensions UK.

Analysis by Quilter suggests a single person would need a pension pot worth £738,000 to buy an annuity with enough income for a comfortable retirement, or £929,000 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.

James Corcoran, chartered financial planner at wealth management firm Lumin Wealth, says: "As life expectancy increases, retirees face the risk of outliving their savings.

"Planning for potentially 30-plus years in retirement adds complexity to financial forecasting."

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 is set to rise 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.

Morrisey added: “That will be greeted with relief by this group who were worried about the prospect of a tax bill in future years, though pensioners who already pay tax because they’ve saved into a pension will continue to pay tax on their income.”

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.

“The first step to closing the gap in your pension savings is to understand how big the gap is and whether you’re on track for the retirement you want,” he says.

“Start by checking how much money is in each of your pension plans and how much you’re paying into your pension each month, in order to estimate the size of your pension pot at retirement.

“Even if you can’t save more into your pension right now, there may still be ways to boost the size of your pot.

"For instance, controlling your costs can have a significant impact on your pension savings, as fees can eat into your investment returns over time. Additionally, it might be worth bringing your multiple pension pots together into a single plan, as this can cut down on admin and make it easier to see how much you’ve saved.”

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 rose over the past year or so, annuity rates have looked more attractive. This gives retirees something extra to think about when it comes to accessing their pension pot.

The start of 2025 saw a sharp increase in the yields on long-term UK Government bonds, or gilts, the assets used to underpin annuity prices.

The latest data from Hargreaves Lansdown’s annuity search portal shows a 65-year-old with £100,000 can get up to £7,661 per year from a single life level annuity with a five-year guarantee.

Morrissey added: “The prospect of further rate cuts continues to loom on the horizon so we could see these rates drift down over the coming months but interest in annuities will remain high. However, it is hugely important to check the market before accepting an annuity quote as once bought an annuity can’t be unwound.

“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.

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 the decision of whether to go with an annuity or income drawdown must be down to the individual.

He says: “Most investor priorities for retirement income are based around peace of mind, maximising what they have, and in some instances, passing wealth on to future generations. Different people will have varying priorities, so there is not a one-size-fits-all approach.

“For the majority of people, however, 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.

Norton adds: “We would urge investors not to panic and make sudden changes to their retirement plans as a result of the announcements in the Autumn Budget.

"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?

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 the 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.”