Most people retire in their mid-to-late 60s. So if you’re in your 50s, you might still have another decade or so to prepare for your retirement.
The closer you get to retirement, the more you might worry about there being enough in your pension to live off comfortably. Fortunately, there’s an easy way to find out, and a number of things you could do to improve your situation if needed.
Are you on track to receive a large enough pension?
According to research, the average person needs to draw down around £19,000 from their pension each year to live a comfortable retirement - or £13,000 a year each for couples (hear more about this in our Pension Confident podcast).
To check if you’re on track, you can use a tool like PensionBee’s pension calculator.
A pension calculator will show you how much your pension could be worth at retirement and how long it could last if you draw down a desired amount each year.
You can specify when you want to retire (55 is usually the earliest possible age, and this will rise to 57 by 2028). And you can choose whether to take out a tax-free lump sum at 55 or include the State Pension.
You’ll quickly see whether you’re on track or not.
If you’re a little behind where you want to be, you could consider:
- increasing your contributions
- contributing a lump sum
- delaying your retirement
- downsizing your home
- consolidating your old pensions
In some circumstances, it simply might not be possible to get to where you want to be in such a short time. So you might need to adjust your expectations and plan for having a little less to live off in retirement.
Remember, £19,000 is just the average amount that individual retirees say they need to live a comfortable retirement. You could get by on less.
Are all your pensions in one place?
When it comes to retirement planning, it helps to have all your pension savings in one place. But the average person has 11 jobs throughout their working life - that’s a lot of pensions to keep track of!
Combining your old pensions into a current or new pension plan:
- makes it easier to manage your money
- makes it easier to see how much your retirement savings are worth
- could save you from paying excess fees
- could improve the performance of your investments
In some cases, you might lose valuable benefits if you consolidate an old pension (if you have a defined benefit pension, for example). So you might want to check with your pension provider or an independent financial adviser first.
If you have a defined benefit pension worth over £30,000, you’ll need to seek advice from an independent financial adviser before transferring your pension.
Combining your pensions with PensionBee is simple and free, and you can do it easily online.
Are you invested in an appropriate pension plan?
At PensionBee, we offer seven pension plans. Each plan is designed for a different retirement goal. And there are many more plans available elsewhere.
As you approach retirement, you’ll need to make sure that your plan matches your retirement goal and your age.
One of the most important factors that indicates whether a plan is appropriate for you is its risk rating.
- A lower-risk pension plan will put your money into investments that have lower potential for growth but a lower potential for experiencing short-term losses due to market fluctuations.
- A higher-risk pension plan will put your money into investments that have higher potential for growth but a higher potential for experiencing short-term losses due to market fluctuations.
So savers will typically want a higher-risk pension plan while they’re younger, and a lower-risk plan as they approach retirement.
Many PensionBee customers choose our Tailored Plan because it automatically rebalances your investments as you get older. When you’re younger, it will put your money into higher-risk investments that have higher growth potential. And as you approach retirement, it will put your money into lower-risk investments that are more likely to weather any short-term fluctuations. This way, your retirement savings are less likely to experience losses just when you plan to access them.
If you haven’t already, you can consider switching to a lower-risk pension plan here.
When do you want to retire?
The earlier you retire, the more money you’ll need in your pension to support you throughout your retirement.
The earliest that most pension providers will allow you to access your pension is 55, though this will rise to 57 in 2028.
Let’s assume that you plan on drawing down £19,000 a year from your pension, will collect the full State Pension, and live until you’re 82.
You’d need a pension pot of around £320,000 to retire at 55. But you’d need a much smaller pot of around £135,000 to retire at 67.
If your pension savings aren’t where they need to be to afford a comfortable retirement at your desired retirement age, you could consider delaying your retirement for a few more years.
How do you want to receive a pension income?
There are several ways that you can take money out of your pension. And each has its pros and cons.
- draw down a regular amount each month
- take out a lump sum when you need to
- use your pension to buy an annuity
- do a combination of all these things
Many people choose to draw down a regular monthly income, as it’s a method of receiving money that they’re familiar with. It’s easy to budget and it’s also easy to calculate how long your pension could last. The downside, though expected, is that it will eventually run out.
Taking out a lump sum every now and again could be worth considering if you don’t plan on relying on your pension to cover day-to-day living costs. And because 25% of your pension can be taken out tax-free, many people choose to take out the tax-free part of their pension at 55 before they fully retire for a nice cash boost.
You could also buy an annuity with your pension, which will pay you a regular amount for the rest of your life (or a certain amount of time). The advantage is that it could never run out, but you won’t be able to take out a lump sum if you need to, and it generally pays out a smaller amount than drawing down from a pension for a shorter amount of time.
How you plan to access your pension could affect your planning. For example, you’ll need to make sure you have other sources of income to fund your day-to-day expenses if you only plan on taking out a lump sum from your pension every now and again. And you might want to consider being able to take out a lump sum if you plan on helping a family member go to university or afford the deposit for their first home, for example.
Are you on track to receive the full State Pension?
The State Pension is currently available for anyone over the age of 66. The state retirement age will increase to 67 in 2028 and 68 between 2037 and 2039.
- To receive the full State Pension (£203.85 per week), you’ll need to have paid National Insurance for 35 years.
- To receive the minimum State Pension (around £58 a week), you’ll need to have paid National Insurance for 10 years.
You can check how much State Pension you’re on track to receive on the Government’s website.
If you haven’t made the required National Insurance Contributions to receive either the minimum or full State Pension, you can make voluntary contributions to catch up.
Retirement planning checklist
Fancy a recap? Here’s how to plan for retirement in your 50s
1. Check if you’re on track to receive a large enough pension You’ll need around £19,000 a year to afford a comfortable retirement. Use PensionBee’s pension calculator to see if you’re on track. If you’re behind, you could consider increasing your contributions, contributing a lump sum, delaying your retirement, downsizing your home, or consolidating your old pensions.
2. Consider consolidating your old pensions Your retirement savings could be easier to manage if you have just one pension to take care of. You’ll have a clearer understanding of how much your retirement savings are worth and may find it easier to manage your money. Consolidating your pensions could also save you from paying excess fees and even improve the performance of your investments.
3. Check that you’re invested in an appropriate pension plan Not every pension plan is appropriate for everyone. So you’ll need to make sure your current plan is right for your current circumstances and future retirement goals. One of the most important considerations is the plan’s risk rating - the higher the risk, the more growth potential it will have but also the higher chance of losing value in the short-term if the markets take a hit. You can consider switching to a lower-risk pension plan here.
4. Consider when you want to retire You can retire from the age of 55 (57 from 2028), although many people choose to retire in their late 60s. You’ll need a much larger pension to retire early - more than twice as much at age 55 than 67 (see the chart above). If you’re not on track to have a large enough pension to retire at the age you’d like, you could consider making further contributions now or delaying your retirement age.
5. Consider how you want to receive a pension income There are many ways of taking money from your pension, including drawing down a regular amount each month, taking out a lump sum when you need to, using your pension to buy an annuity, or doing a combination of all these things. Depending on which method you plan to choose, you might need to adjust your contributions or retirement age accordingly.
6. Check if you’re on track to receive the full State Pension So long as you’ve at least 10 years of National Insurance Contributions, you’ll receive the State Pension when you turn 66 (67 from 2028). But to receive the full State Pension, you’ll need to have at least 35 years of National Insurance Contributions. If you’re behind, you can make voluntary contributions to catch up.
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.