How much retirement income can an ISA provide?

How much retirement income can an ISA provide?

There is no single figure. An ISA is a tax wrapper, not a product with a set payout, so what it provides in retirement depends on three things: how big the pot is, what return it earns, and how much you choose to take out. The same £100,000 pot can pay a modest income that lasts for decades or a larger one that runs out, depending on how it is drawn.

The simplest way to picture it is the income a pot produces if you take only its return and leave the capital in place. The table below is an illustration, not a forecast and not the rate on any account. It shows the yearly and monthly income from three pot sizes at two illustrative yearly returns.

These figures are simple arithmetic: the pot multiplied by the return. They assume the return is taken as income rather than left to compound, that the rate stays the same, and that nothing is added or taken from the capital. Real returns vary, and an investment can fall as well as rise, so treat the table as a way to see the shape of the numbers, not a promise. The ISA vs savings account calculator runs the same sum at a rate you choose.

The numbers that matter

Tax on ISA income and withdrawals

None

Interest, income and capital gains in an ISA, per gov.uk

Overall ISA allowance, 2026/27

£20,000

Across all your ISAs combined

Cash ISA limit from 6 April 2027

£20,000

Planned cut to £12,000 cancelled

Pension annual allowance, 2026/27

£60,000

A separate limit, for comparison

Can you live off the interest from an ISA?

Taking only the return, and leaving the capital untouched, is often called living off the income or taking the natural income. If a pot earns enough to cover what you need, the income can carry on without the capital shrinking. Whether it covers what you need comes down to the size of the pot and the rate it earns.

A Cash ISA pays interest, so its natural income is the interest the account pays. For reference, the highest easy access Cash ISA rate in our table is 4.86% AER (variable), last checked 30 October 2026. An easy access rate is usually variable, so the provider can change it, and rates move over time. Our easy access Cash ISA table and fixed rate table rank every account by rate and show each account’s conditions.

A Stocks and Shares ISA can produce income from dividends and interest on the investments it holds, and that income is tax-free inside the ISA. It is not a fixed rate, though, and the value of the investments can fall as well as rise, so the income and the capital can both go down as well as up. This page names no provider, fund or investment.

The limit of living off the income is that the income is only as large as the return. If the return is small, or the pot is modest, the natural income may not be enough on its own, which is where drawing on the capital comes in.

What is the difference between taking the income and drawing down the pot?

Taking only the return leaves the capital in place, so in principle it can last indefinitely. Drawing down means taking more than the return, so the pot itself shrinks over time. Both are valid ways to use an ISA in retirement, and the difference matters because it decides how long the money lasts.

A plain illustration shows the point. Take a £100,000 ISA and suppose you take £6,000 a year, or £500 a month, from it. If the pot earned nothing at all, £100,000 divided by £6,000 would last 16 years and 8 months before it ran out. Any return the pot earns makes it last longer; a year of poor investment returns, or drawing more, makes it run out sooner. This is arithmetic, not a forecast, and it ignores inflation and any charges.

This is why a sustainable level of drawing is usually lower than it first looks: taking much more than the pot earns, year after year, exhausts it. How much is sustainable depends on the return, how long the money needs to last and how much risk is taken with it. A general guide cannot set that figure for you, and MoneyHelper (moneyhelper.org.uk) offers free, impartial guidance on turning savings into retirement income.

Why is income from an ISA tax-free, and why does that matter in retirement?

gov.uk says you do not pay tax on interest on cash in an ISA, or on income or capital gains from investments in an ISA. It also says you can take your money out of an ISA at any time without losing any tax benefits. So money drawn from an ISA in retirement arrives free of Income Tax and Capital Gains Tax, whatever the amount.

Just as important, ISA income does not count towards the income that sets your tax band. gov.uk’s Income Tax rules tax income above the £12,570 Personal Allowance at 20%, then 40% above £50,270, then 45% above £125,140. Because ISA withdrawals are not taxable income, they do not use any of your Personal Allowance, do not push other income into a higher band, and do not count towards the £100,000 point at which the Personal Allowance starts to taper away.

Savings held outside an ISA are treated differently. gov.uk says to work out your tax band by adding all the interest you have earned to your other income, and that the resulting band sets your Personal Savings Allowance: £1,000 for a basic rate taxpayer, £500 for a higher rate taxpayer and £0 for an additional rate taxpayer. A retiree with low other income may also use the starting rate for savings, which gov.uk says lets you earn up to £5,000 of interest tax-free if your other taxable income is under £17,570. Interest inside an ISA uses none of these allowances, because it is already tax-free. The savings tax calculator works out the tax on interest held outside an ISA.

How does an ISA fit alongside a pension and the State Pension?

For most people an ISA is one part of a retirement income, not the whole of it. A pension works the other way round from an ISA on tax: it gives tax relief on the money going in, within the £60,000 annual allowance for most people, but gov.uk says you usually pay tax on the income from a pension, including the State Pension. An ISA gives no relief going in, but the income comes out tax-free.

That difference is useful in retirement, because the two can be combined to manage a tax bill. Taxable pension income can be taken up to a point, for example up to the Personal Allowance or the top of the basic rate band, and an ISA can top up the rest without adding to taxable income. Drawing from an ISA in a year when taxable income is already high keeps that income out of a higher band. For how tax relief, access ages and the tax-free pension lump sum compare, see ISA vs pension, and for the age rules that matter to older savers see ISAs for over 50s and 60s.

How does the £20,000 allowance affect building a retirement ISA?

The income an ISA can pay starts with the pot, and the pot is built within the ISA allowance. The overall allowance is £20,000 a year for 2026/27 across all your ISAs. The Cash ISA limit stays £20,000 as well, after a planned cut to £12,000 for savers aged 64 or under was cancelled in the Budget on 28 October 2026. For anyone building a retirement pot over many years the yearly allowance, not any single payment, is usually the binding limit, so starting earlier leaves more years of allowance to use. See the Cash ISA limit for the detail and the ISA allowance for how the yearly limit works.

What could change the income an ISA provides?

Several things move the income up or down over time, so the figures above are a starting point rather than a fixed amount:

• The return can change. A variable Cash ISA rate can be cut, a fixed rate ends when the term does, and an investment return is never guaranteed. A lower return means less natural income.
• Investments can fall. In a Stocks and Shares ISA the capital can go down as well as up, so both the pot and the income it can support can shrink, not only grow.
• Inflation reduces what the income buys. A level income buys less each year as prices rise, so an income that is comfortable now may not be in later retirement.
• Drawing more than the return shortens the pot. As the drawdown illustration showed, taking more than the pot earns runs it down, and a run of poor years runs it down faster.

Because of all this, an ISA’s retirement income is best thought of as a range that depends on choices you control, such as how much to take, and on things you do not, such as rates and markets.