Retirement has changed. Has your plan?

Longer life expectancy means retirement could last three decades or more. That makes planning for income, investment risk and flexibility more important than ever. Our special contributor and Daily Telegraph columnist David Stevenson explores more.

Retirement used to be simple to understand. Until just a few decades ago, your job provided you with a pension (probably a defined benefit scheme), which meant you could retire at 65, get a steady income, and then enjoy the rest of your life. No need to worry about longevity risk or which income drawdown scheme to buy into.

Today, defined benefit pension schemes are largely a thing of the past outside the public sector, and we’re all living much longer. Now investors worry about the size of their pension pot, and whether they have enough money to last them all the way through retirement.

There is an upside, though. Your choices, enabled by digital technology, have expanded dramatically, bringing their own challenges. With a bit of professional advice, you probably need to think carefully now about different strategies and options. Some traditional options, like annuities, remain popular, but as retirement lifespans increase, other options are becoming equally appealing and easier to implement digitally. This is set against the backdrop of an increasingly digitally engaged 60-something investor base – Lloyds recently surveyed this age cohort and found that 86% of UK adults aged 60 and over were online in 2025, up from 72% in 2016, a nearly 20-percentage-point gain in a decade.

But before we get to topics such as equity risk, equity release, financial buckets and retirement income, let’s start with the big change – we’re all living longer. That’s great news, but it comes with a catch.

A new demographic reality

A 2023 survey by Aviva found that UK adults aged 50 to 70 expected to live to around 80, a significant underestimate relative to the actuarial probability. By contrast, the Office for National Statistics currently estimates that a 65-year-old man in the UK has a 50% probability of reaching 87, while a woman of the same age has an even chance of seeing 89. But averages, as ever, obscure the tail. Roughly one in ten 65-year-old men today will live to 97, and one in ten women to 99. For couples, the mathematics compound: the probability that at least one partner in a 65-year-old couple survives to 90 now sits comfortably above 60%. This matters because the planning horizon is no longer 15 to 20 years – it is potentially 35.

A portfolio that must sustain a comfortable income from age 60 to age 95 faces entirely different demands on its construction, its sequencing, and its flexibility than one designed to last two decades. Sequence-of-returns risk, the danger that poor early returns in retirement permanently impair a portfolio’s ability to recover, becomes far more consequential when there are three and a half decades of withdrawals ahead.

Annuities, tried and tested but with flaws

One traditional way to work around this longevity challenge has been through annuities. These are ancient financial instruments (they’ve been around for hundreds of years) with a simple premise or offer. At a suitable retirement point, you take your accumulated capital, approach a life insurance company and take out an annuity. This gives you a guaranteed income through to the end of your life. There are variations on the same theme, including escalating annuities which pay more as inflation increases over time. There’s also a growing number of annuities that will pay more if you are a smoker, for instance.

All of these annuities are built around a simple calculation by an insurance company. Its experts, called actuaries, examine a pool of clients, estimate their probability of dying at a given age, and then build an asset portfolio to fund payouts. The key point, though, is that at the end of your life, there is no payout – there is no return of capital. The bet for the insurance company is that its entire pool of clients doesn’t collectively live to 110!

That loss of initial capital is a clear drawback, but annuities have not gone the way of defined benefit schemes – they remain, to a degree, popular, helped by guaranteed income payouts that have increased sharply in recent years. Annuity rates for a typical single male aged 65 hit 7.62% in March 2026, with pricing up 1.46% on the end of 2025 – well up from the miserable lows of 2021. That’s a very decent, guaranteed-for-life income, and many have taken advantage of these high annuity rates. According to the ABI, the industry association, total value grew 4% to £7.4 billion in 2025 – the highest since pension freedoms – despite a 2% fall in the number of annuities sold, with sales of annuities over £250,000 rising 31% and over £500,000 rising 54%. More specifically, according to Which magazine, sales of escalating annuities rose to just over 18,000 in 2025, up 10% from 2024, the highest level since 2013.

What’s undoubtedly helped annuity providers is the surge in income rates paid, which, in turn, has been driven by much higher interest rates and UK government bond yields – both of which are very relevant for what’s inside insurance company annuity portfolios. But changes in the inheritance tax regime have also contributed. From 6 April 2027, if death occurs on or after age 75, the effective inheritance tax rate on an unused pension pot could reach 64%, making an annuity look more attractive for larger-pot holders.

But there’s no getting around the drawback: you lose your capital when you die. The good news is that annuities aren’t your only option when you retire. You could just carry on doing what you’ve been doing for some time, i.e., investing in a diversified portfolio of mostly equities and maybe some bonds.

Thinking differently about risk

The traditional financial model used by financial advisers suggests that when investors reach their 60s, or even late 50s, they should start to prioritise less risky investments, such as bonds. Then, when they retire and enter their de-accumulation phase, they actively move out of those risky equities, stick with bonds (and maybe annuities), and start drawing down their cash.

The trend of increased longevity has thrown that assumption into doubt. Many investors continue working well into their 60s and are happy to continue taking on the risk of investing in equities until their late 60s or even early 70s, confident that they need to keep amassing capital for the next 30 years of their retirement.

Research from Morningstar and Vanguard has consistently shown that moderately equity-heavy portfolios – those holding 50% to 70% in global equities throughout the early to middle years of retirement – have historically produced superior long-run outcomes for investors with longer planning horizons, even after accounting for sequence-of-returns risk.

One option might be to dial down equity risk by investing in more defensive, income-based stocks, shares, or funds. Or investors might build a more diversified portfolio that incorporates equities, bonds and what are in effect hybrid securities like infrastructure investment trusts which behave like equities but pay out cash more like bonds. Whatever the mix of assets in your portfolio, the net result is probably the same.

In this scenario, you will probably keep your pension, be it a traditional defined contribution pension (or money pension) or a Self-Invested Personal Pension (SIPP), invested in funds, stocks, and bonds for longer – perhaps even into your 70s. You might also consider an income drawdown scheme to help with day-to-day expenses. The key proviso, though, with a strategy that keeps you invested in risky assets, is that you are aware of the risk that equities could lose money just when you need both capital and income most. This is called sequencing risk.

What about your buckets?

One way to think through your options and build in some flexibility is to use the concept of financial buckets. You don’t want all your investments, savings and products doing the same thing at the same time in your retirement cycle. You might consider different investments/products for different stages of retirement.

You might, for instance, have a short-term bucket of one to three years of expenditure, held in cash or short-duration fixed income, that provides a liquidity buffer protecting an investor from being forced to sell equities in a falling market. A medium-term bucket, perhaps covering years three to ten, might hold a blend of bonds, infrastructure, and lower-volatility multi-asset strategies. A long-term growth bucket, responsible for maintaining the portfolio’s real value over decades, could carry much higher equity exposure with confidence, because the psychological and practical pressure to liquidate in a downturn has been relieved by the shorter-term buckets.

Crucially, each of these buckets might be held in different tax wrappers: cash ISAs might be great for the short-term bucket, SIPPs for the long-term bucket. You might even fit annuities within these buckets.

Other options?

Equity release and housing wealth could, in some circumstances, be worth a thought. For a significant cohort of UK retirees, the family home is their largest financial asset, and for those asset-rich yet cash-poor, the ability to unlock that equity through lifetime mortgage products has changed considerably. The modern equity release market, regulated by the Financial Conduct Authority and governed by standards set by the Equity Release Council, offers a range of flexible products including drawdown facilities and the option to make voluntary capital repayments.

I’m also a big fan of what’s called dividend harvesting for older, income-focused investors. This involves investing in (risky) equities and funds that focus on harvesting dividends from companies. You could reinvest these dividends to see your investments’ value compound over time, or take the dividends as income, tax-free if held within an ISA. Crucially, dividends tend to be less volatile than stock prices, and many companies and funds have a track record of increasing payouts progressively over many years. For instance, more than 20 investment trusts have increased their dividend payouts every year for the past 20 years. These funds tend to focus on income-producing stocks and are generally more defensive in their approach.

Thoughts on a happier, wealthier retirement

So what conclusions might a 60-something investor reasonably draw from these options?

First, I’d say readers should think positively. Plan for a retirement that lasts through to 95 rather than 85 as a baseline life expectancy and even consider using a target of living to 100 as a stress-test. If you build these ideas into your planning, you’ll probably have a more robust roadmap.

One logical consequence of this is that you might need to consider taking on more investment risk later in life if you expect to have a long retirement. The old idea of dampening equity risk when you hit 60 (or even younger in some models) is, I think, increasingly open to debate. I know of plenty of investors who still take market risk all the way through their 60s and well into their 70s.

Crucially, that increased longevity comes with more options. I wouldn’t rule out annuities, but be aware of their downside. More and more investors I speak to are happier managing their pension and ISA pot – with professional guidance – through to their late 70s. They might even consider options like equity release or dividend harvesting. All these options, and many more, are on the table, but I’d strongly suggest seeking professional advice to get you started on the retirement journey.

Next up, understand what you think your income requirements will be over the 30-plus years of likely retirement, and understand that they’ll vary over time. Unless you are in a retirement home, it’s highly unlikely, for instance, that you’ll be spending huge amounts on a daily basis in your late 80s and early 90s. By contrast, you might want to live it up like a prince or princess in your late 60s and early 70s. It’s all your choice, but understand the income profile.

This also prompts a penultimate suggestion: think dynamically about sequencing risk. Sequencing flexibility matters enormously. The ability to modulate spending in the early years of retirement (spending more when markets are up, spending less after a material drawdown) is one of the most powerful tools available to drawdown investors, and one that requires a financial plan explicitly designed around variables rather than fixed spending. Dynamic withdrawal strategies, pegged to portfolio performance rather than a fixed percentage, have been shown in simulation studies to meaningfully extend portfolio longevity relative to rigid systematic withdrawal approaches.

One final thought. If you are digitally savvy, look at the full range of options, check the quotes you receive in terms of returns and costs, and use the wide range of online calculators that let you model spending and return profiles.

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