What Taxes Will I Pay In Retirement?

Estimating the tax you’ll pay on savings and retirement income is a crucial cost to weigh when planning for retirement.

Key Takeaways

  • Estimating the taxes you’ll pay on retirement income is an important piece of the retirement planning process.
  • You should consider taxes on pension income, other retirement income, as well as any taxes on savings interest or capital gains from selling securities.

While accounting for taxes as a potential expense is an important consideration, taxes shouldn’t be the only information behind your investing decisions.

This webpage should not be construed as tax advice. Please contact your tax professional if you have any questions.

Many retirees have questions about how their tax situation might change in retirement, and rightfully so! When planning for retirement, you need to plan for your total expected costs to make sure you’ve saved enough money to retire. Estimating any tax on savings and retirement is a crucial step to this process and it’s important to get the necessary information for your estimations. In this article, we’ll analyse the taxes you might expect to pay regarding your retirement savings and pension pot.

Income Taxes

If you will be receiving pension or retirement income, you may have to pay regular taxes on that money. Income over the year’s personal allowance amount will be taxed at your marginal income tax rate, even on pension income.

You may be able to take some of your pension pot tax free, but anything over a certain limit will then be subject to income taxes. You will still owe taxes on income from the State Pension, and this may be confusing as these payments may not have any tax taken off when you receive them. However, if you owe taxes on that income, it may be collected from other income sources, such as a workplace pension, personal pension or other aspects of your pension pot.[i]

If you plan to continue working part time in retirement, you must also pay income taxes on that income, unless the total income amount falls below the annual personal allowance. And if you’re drawing from a pension while earning wages, that could affect your current income tax band.

Taxes on Savings

You may be able to earn interest on your savings without paying taxes. However, you may reach a limit or allowance for how much tax-free interest you can earn. This allowance will be based on three major factors:

  • Your Personal Allowance
  • Your Personal Savings Allowance
  • Your starting rate for savings

Other things that can influence your allowance are your other retirement income sources and your income tax band. Because of these factors, it may be difficult to calculate your exact personal allowance. For example, you may be affected if your income from other sources—such as pensions and wages—exceeds certain thresholds. These are all important options to consider when estimating how much of your income and savings you will be able to use towards your everyday expenses.

Capital Gains Taxes

Depending on your account type options, you may have to pay taxes on profits from the sale of shares. If you sell shares in an account other than an ISA and have earned a gain on a sale, the tax man may come around for a share of that gain. Other investments that you may owe capital gains on are units of a unit trust or fixed interest securities. Selling securities for retirement income could be a viable option depending on your tax situation and account types.

Don’t Let the Tax Tail Wag the Investment Dog

Put more simply, taxes shouldn’t necessarily drive your investment decisions. They can serve as one consideration, but investing based on taxes alone is usually misguided. For example, your portfolio should be based on your objectives and circumstances, and not solely on tax considerations. However, if you’re worried about paying taxes on gains, you may choose an investment strategy with less growth prospects. But in doing so, you risk potentially sacrificing your ability to meet your needs just to avoid paying additional taxes.

Paying more taxes isn’t necessarily a bad thing if it means achieving a better net return.

Fisher Investments UK Can Help

If you have questions about taxes, retirement income or retirement planning, Fisher Investments UK may be able to help. We provide financial planning services and may be able to review your investment portfolio and an asset allocation recommendation. To learn more about Fisher Investments UK, call us today to speak with a qualified representative or download one of our educational investing guides.


[I] Source: Money Advice Services, as of 2/22/2019. www.moneyadviceservice.org.uk/en/articles/tax-and-benefits-when-youre-retired.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.