When planning your retirement income, there are several sources of wealth to consider. You will likely have a workplace or private pension to draw from, and you may receive State Pension payments, too.
While these sources might provide enough to live your desired lifestyle, you could top up your income with funds from an ISA.
You’re able to draw from an ISA whenever you like, making it more flexible than a pension, which you can’t normally access until you’re 55 (rising to 57 from April 2028). The other key benefit of an ISA is that you won’t pay any Dividend Tax or Capital Gains Tax on growth, and there is no Income Tax on withdrawals either.
Consequently, ISAs could be an important part of your retirement income strategy. The question is, how much do you need to save to draw a healthy income?
It could cost £45,400 a year to achieve a “comfortable” retirement
The level of income you need in retirement depends on your plans. If you want to travel a lot and have an active social life, you might spend more than somebody who plans to spend lots of time at home.
That said, guideline figures from Pensions UK can be a useful benchmark.
The organisation’s latest Retirement Living Standards release estimates that a single person would need £45,400 a year to maintain a “comfortable” lifestyle. This would afford you one holiday abroad each year, several weekend breaks in the UK, and a healthy amount to spend on socialising.
Now, if you consider that the State Pension payments equal £12,547.60 annually, you would need to generate about £32,850 from other sources each year to hit this benchmark.
You could generate a regular income through dividends or capital withdrawals from an ISA
There are two ways to generate income from wealth in a Stocks and Shares ISA.
First, you can earn dividends from the stocks you hold. Companies periodically pay a portion of their profits to shareholders, and this could provide a regular income.
Also, you could sell investments to release wealth from your Stocks and Shares ISA. If you have a Cash ISA, you can withdraw funds as needed.
Dividends
Let’s consider dividends first.
According to the London Stock Exchange Group, the average annual dividend return from the FTSE All-World index – consisting of a selection of stocks from around the world – between 2000 and 2024 was 2.31%.
With this level of return, you would need to hold £1,422,077.92 in your ISA to generate the full £32,850 from dividends each year.
It’s unlikely that you will rely solely on the State Pension and an ISA for income in retirement because you will have private pensions to draw from, too.
However, even if you wanted to generate a portion of your income – say £10,000 – from dividends, you would need approximately £432,900 in your Stocks and Shares ISA.
Drawing from capital
Instead of or alongside your dividends, you can draw capital from an ISA. You might make withdrawals from a Cash ISA or sell investments in a Stocks and Shares ISA.
To determine how much you might need to save, it’s worth considering how long you may need to fund your retirement.
According to the Office for National Statistics, the average life expectancy for a 50-year-old is 83 for men and 87 for women.
If you were to retire at 65, this could mean funding your retirement for approximately 20 years.
So, to generate the £32,850 annually, you’d need £657,000 in your ISA.
If you were to draw £10,000 each year, you would need £200,000.
Of course, these figures are not entirely accurate as your ISA may still be growing while you make withdrawals. Plus, you could live for longer than 20 years in retirement. That said, these numbers still serve as useful estimates of how much you may need in an ISA to fund your retirement.
Cashflow planning can help you arrive at a more accurate savings goal
The amount you need saved in your ISA varies depending on your retirement goals and how much wealth you can draw from other sources, such as pensions.
We can help you arrive at a more accurate savings goal by using cashflow planning. We’ll discuss your desired lifestyle and create a budget to predict how much you’re likely to spend each year.
Then, we’ll input data about your various sources of wealth to build a picture of your planned income strategy. Using this information, we can see how much you will draw from your pensions and ISAs each year, giving us an idea of how much you need to save.
Crucially, we can account for variables such as inflation and the growth you might achieve on your ISA savings.
Consequently, we can give you a much clearer idea of what you need to save in your ISA each month to generate a suitable income in retirement.
Get in touch
For support with your retirement income plan, please give us a call on 01276 855717 or email info@braywealth.com today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
An ISA is a medium to long term investment, which aims to increase the value of the money you invest for growth or income or both. The value of your investments and any income from them can fall as well as rise. You may not get back the amount you invested.
HM Revenue and Customs’ practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
The Financial Conduct Authority does not regulate cashflow planning.
Approved by the Openwork Partnership on 12/06/2026
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