Resolving a retirement shortfall

If you’re concerned about whether your money will last the rest of your life, you’re not alone. The good news is that there are practical steps you can take to assess your situation and make informed decisions. One of the most powerful tools available is cash flow modelling, which can help you visualise your financial future and take control of your retirement planning.

A retirement shortfall occurs when your projected income in retirement falls short of the amount needed to maintain your desired lifestyle. According to the latest Pensions UK RetirementLiving Standards 2024, a single person needs around £31,700 per year for a moderate lifestyle and £43,900 for a comfortable one. Yet, according to the Pension wealth: wealth in Great Britain 2020 – 2022 research published by the ONS in January 2025, the average pension pot in the UK is significantly lower — just £145,900 for those aged 65 – 74.

This gap can result in difficult choices: delaying retirement, reducing spending, or reconsidering long-held plans. But it doesn’t have to mean giving up on your goals.

Cash flow modelling is a dynamic forecasting tool used by financial advisers to map out your financial future. It takes into account:

• Your current savings and investments
• Expected retirement age
• Estimated income sources (e.g. pensions, rental income)
• Typical spending patterns
• Assumptions around inflation and investment growth
• Projected life expectancy

Using this data, a personalised cash flow illustration shows how long your money is likely to last and whether your goals are achievable.

It can also simulate different scenarios, such as retiring earlier, gifting money, or needing long-term care, to help you make informed decisions.

Importantly, cash flow modelling isn’t a one-off exercise. It should be revisited regularly to reflect changes in your circumstances, market conditions, or aspirations. 

But remember, while cash flow modelling provides valuable insight, it’s important to remember that it is a forecast based on current assumptions. The illustration is not a guarantee of future outcomes, and actual results may differ due to changes in markets, legislation, or personal circumstances. It should be viewed as a guide to support planning, rather than a precise prediction.

If your cash flow model reveals a gap between your projected income and your needs, don’t panic. There are several strategies to help bridge the shortfall:

Even small increases in pension contributions could make a big difference over time. Thanks to tax relief, every £80 you contribute becomes £100 in your pension. Higher-rate taxpayers may be able to claim more via HMRC self-assessment.

Consider:

• Redirecting part of your salary or bonuses via salary sacrifice if your employer offers this.
• Allocating pay rises to pension savings
• Making lump-sum contributions if you receive an inheritance or windfall

Working a few extra years could significantly boost your pension pot and reduce the number of years it needs to support you. It also allows more time for investments to grow and for you to continue contributing.

Your investment choices could impact how quickly your pension grows. A financial adviser can help you assess whether your portfolio is aligned with your goals and risk tolerance. 

Sometimes, taking on slightly more investment risk can improve long-term outcomes, but this must be done carefully following the advice of a professional financial adviser.

High fees can erode your savings over time. Review your pension plans and consider consolidating them with a low-cost provider, but only if it’s suitable for your situation. Defined benefit pensions, for example, come with valuable guaranteed income that shouldn’t be given up without taking professional advice.

Drawdown offers flexibility, but it comes with the risk of outliving your savings. An annuity provides guaranteed income for life. A hybrid approach (securing essential income with an annuity and using drawdown for discretionary spending) can potentially offer both security and flexibility.

However, these are just a few retirement options. There are many more available, and as holistic advisers, at Schroders Personal Wealth we explore the full range to find what’s right for you. 

Many retirees underestimate how long their pension needs to last. With life expectancy now averaging 84.8 years for men and 87.5 years for when aged 65 in the UK in 2023 according to ONS data, it’s crucial to plan for a retirement that could span 25 years or more.

Here are some golden rules to avoid running out of money:

• Don’t overspend early: Avoid large lump-sum withdrawals unless you have a clear plan.
• Build emergency savings: Although this amount is dependent on your personal circumstances, retirees should aim for a minimum of 3 months’ worth of outgoings in accessible savings as a safety net.
• Review regularly: Your retirement strategy should evolve with your life. Regular reviews with a financial adviser can help keep your plan on track.

Facing a retirement shortfall can feel daunting, but it’s never too late to take control. Whether you’re five years from retirement or already retired, cash flow modelling could provide clarity and confidence.

Make an appointment to speak to one of our financial advisers about creating a personalised financial roadmap. Together, you can explore your options, rehearse different scenarios, and take proactive steps to build the retirement you deserve.

Fees and charges apply at Schroders Personal Wealth.

Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.

Always seek a professional opinion as tax rules can be complex, depend on individual circumstances and are subject to change.

The different scenarios discussed are examples and what is right for each person will depend on individual circumstances.

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