This article was last updated on 20/07/2023
You’re nearly there. You’ve saved throughout your working life and you can almost taste retirement. But with other parts of life taking up more of your time - such as work and family - it’s easy to take your foot off the gas when it comes to planning for retirement.
But now is not the time to coast.
The decisions you make from now on could have a considerable impact on the size of your retirement savings and whether or not you could achieve the income you need once you stop working.
If you’re on track, great! If you’re not, you’ve still got time to make changes to your situation.
To help, we’ve put together a 10-point checklist to guide you through this process and help you enjoy a happy retirement.
1. Make a budget
This might seem like a very basic first step, but many people don’t know what income they’ll need when they retire.
The simple reality is that if you don’t know how much you’ll need, it’s difficult to know if you’re on track.
Perhaps the simplest way to think about the amount of income you’ll need is to divide your spending into two buckets: essential and non-essential spending.
Essential spending
This is the money that you’ll need to cover your basic living needs in retirement. This could include expenses such as mortgage payments, food, utilities and essential insurance (such as home and car insurance).
Non-essential spending
This is sometimes also called ‘discretionary’ spending and includes things that you enjoy. This could include eating out, holidays and pursuing various hobbies. This sort of spending needs to be factored in. You don’t want to just have enough to survive on, you’ll want to spend your money on the things that bring you pleasure too!
It’s also important to remember that there will be costs that might fall and rise once you retire. For example, if you commute to work, this will be a cost that you won’t need to factor in. However, you might want to start thinking about the costs of long-term healthcare and work out how much this could potentially cost.
- Learn more about budgeting.
2. Identify your sources of income
Once you’ve got an idea of what income you’ll need, it’s now time to start identifying where your income will come from. There are a few common sources of retirement income, such as your:
- Workplace pensions
- Personal pensions
- State Pension
- Investment accounts (e.g. Stocks & Shares ISAs)
- Rental income from property
- Savings
3. Calculate your projected income
Pensions are normally the main source of an individual’s retirement income. If you’ve got multiple pensions across various providers, you’ll need to contact each provider and ask for a statement of your projected income based on the size of your current pension pot.
Alternatively, you might be able to see how much is in your pot on the annual statement that they send you. Modern pension providers will allow you to check your balance online or even via an app. This makes it much simpler to see how much is in your pension.
At this stage, using a pension calculator can be useful. By entering a few details, such as your retirement age, size of your pensions and how much income you’ll need, you can quickly and easily see whether you’re on track or if you need to take extra steps to get to where you want to be.
You should also request a state pension forecast from the DWP. This will show you how much State Pension you can get, when you’re eligible to receive it and how you could increase it.
It’s possible that you’ll have other income sources, such as rental income and other investments. These can be added to the projected income from your pension to give you an idea of what you’ll receive in retirement.
4. Make the most of your pension contributions
Are you on track to achieve the income you’re after?
If the answer is yes, it’s important to maintain your pension contributions and not get too complacent. If the answer is no, it’s likely that you’ll have to contribute more than you’re currently doing to make up for any shortfalls.
But don’t worry! With 10 years to go, you’ve still got time to turn things around. The sooner you realise that you’re behind, the more time that you’ll have to make the necessary adjustments.
As you’re later in your working life, there are things on your side. It’s possible that you’ll be at the peak of your earnings which might make it easier to put extra money into your pension.
It’s also possible that your expenses, which may have previously garnered much of your attention - such as raising a child or paying off the mortgage - have started to recede.
Carry forward
If you want to contribute more than the annual allowance of £60,000, there’s a simple way you can.
Normally, you can only contribute up to 100% of your earnings to a pension each year or up to the annual allowance of £60,000 (2023/24). However, it’s possible to contribute more to your pension with unused allowances from previous years and still receive tax relief. This is called carry forward.
In short, you can carry forward unused annual allowances from the three previous tax years, starting with the earliest which would be 2018/19.
There are a couple of conditions, however. You must have been a member of a pension scheme in that time and you can’t contribute more in total than what you earn in this tax year (2023/24). For example, if you earned £50,000, you can’t put in £60,000 using carry forward.
Example of carry forward
| Tax year | Total pension contributions | Unused allowance |
|---|---|---|
| 2020/21 | £20,000 | £20,000 |
| 2021/22 | £10,000 | £30,000 |
| 2022/23 | £30,000 | £10,000 |
Using the example above, you’d have £60,000 of unused allowances from the three previous tax years. That means this tax year, you could contribute up to £120,000 into your pension (annual allowance plus unused allowances) and receive tax relief on those contributions. As explained above, you’d need to have earnings in excess of £120,000 to do this.
5. Take advantage of employer contributions
If you’re employed, you should take full advantage of your employer contributions. This will add a valuable boost to your retirement savings if you’re a bit behind.
Auto-Enrolment means that your employer must contribute at least 3% of ‘qualifying’ earnings into your pension, provided you contribute a minimum of 5% too. And many employers match the contributions their employees pay, up to a threshold.
For example, your employer might offer to match any additional contributions you make. If you pay in 5% and your employer pays in 3% - this makes 8% in total. But if you increase your contribution by 2% (to 7%), your employer also does the same (from 3% to 5%) - making it 12% overall.
6. Check your investments
When you’re younger, it’s likely that you’ll want a large part of your pension invested in equities (or company shares). This gives you the chance to ride the inevitable ups and downs of the stock market.
However, once you get closer to retirement - say 10 years to go - it’s often suggested that your portfolio is better invested in ‘safer’ investments such as bonds or cash. This means that you won’t be over-exposed to the stock market if it falls immediately prior to when you want it
Most people have a pension through their employer. In this case, your pension provider will invest the money in your pension on your behalf to hopefully grow it over a period of time. Your money will likely go into an investment called the pension ‘default fund’.
Some pension funds will automatically move your investments into ‘less risky’ assets the closer you get to retirement. But this is not the case with every pension fund so it’s something you’ll want to check.
7. Combine your pensions
Planning for retirement can be difficult when your pensions are scattered across various providers. It can make simple tasks - such as seeing the total value of your pension pot or how much you’re paying in fees - unnecessarily complicated.
If you’re struggling to keep on top of your pensions, a simple solution could be to combine your pensions into a new online plan. Having your pensions together could make them easier to manage, as well as help you to make more informed choices when it comes to saving for retirement.
10 years to go until you retire is a great time to bring all your investments into one place so you’re well prepared.
8. Start thinking about your retirement options
When you retire, you can choose what to do with your pension. This might include taking out a lump sum when you turn 55 or buying an annuity. You could just decide to leave it where it is and make regular drawdowns.
Before deciding which option might be right for you, you’ll want to give it plenty of thought. It’s a very important decision. You might even want to chat it through with a financial adviser.
9. Track down any lost pensions
The average UK worker will have 11 jobs in their lifetime, according to the DWP. If you’ve changed employers, it’s likely you’ll have multiple pension pots dotted around the place.
It’s easy to lose track of these pensions or forget about them altogether. For example, you might move home and forget to tell your pension provider. This isn’t uncommon.
If you can’t remember where the old ones are or how much they’re worth, you’ll need to track them down.
The government’s free Pension Tracing Service lets you enter some basic details about your old employer to help locate the contact details of the pension provider. You’ll have to contact them individually to find out how much your pots are worth and to update your contact details.
10. Reduce your debt
With 10 years to retirement, it’s a good opportunity to consider paying off any debt you might have. By reducing your existing debt, you can minimise the amount of retirement income that will be spent on interest payments.
Of course, not all debt is the same. However, as a general rule of thumb, you’ll want to consider tackling the ‘high interest’ debt first. This could include personal loans on credit cards or payday loans.
If you’ve got ‘low-interest’ debt - such as a mortgage - you might be happy to pay that off over a period of your retirement if it’s not too punitive.
Summary: 10 years to retirement checklist
10 years to retirement is a great time to review your finances and see if you’re on track to retire when you’d like to. It can give you time to make essential changes, if necessary.
To help you start on the right path, take a look at our ten point checklist:
- Make a budget
- Identify sources of income
- Calculate your projected income
- Make the most of pension contributions
- Take advantage of employer contributions
- Check your investments
- Combine your pensions
- Start thinking about retirement options
- Track down any lost pensions
- Reduce your debts
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
