Preparing for retirement checklist

Financial decisions aren't easy and planning your retirement’s no different. Take a look at our checklist to help make your retirement plan.

It can be difficult to decide what to do with your money when you reach retirement. There may be more to consider than you first realised. That’s why it might be helpful to make a retirement plan before you’re ready to retire.

Perhaps you’ve got 10 years to go before you plan to retire, maybe it’s longer, maybe less. It’s never too early or late to start your retirement plan. Here are some things to think about.

Work out when you’d like to retire

An important question to ask yourself is when you’d like to retire. Do you want to retire in line with your State Pension age, do you want to retire earlier, or do you want to delay your retirement for a few years?

The State Pension age has been gradually rising over the years and can differ depending on your current age. As of 2024/25, the State Pension age’s 66, but this’ll only apply to you if you’re turning this age before 2028. That’s because from 2028, the State Pension age’s rising to 67. If you’re a little younger, you could be waiting even longer to get your State Pension, with current legislation stating plans for a rise to 68 between 2044 and 2046. You can visit the government website to check your State Pension age.

You don’t have to wait until you’re receiving your State Pension to retire. If you’d like to, you can retire earlier and fund it with your savings. However, there are restrictions on when you can withdraw from your personal and workplace pensions. Currently, most pension schemes will allow you to access your funds from the age of 55, though this is rising to 57 from 2028. You can check if you’re on track to retire before you receive your State Pension by using our State Pension age calculator.

Alternatively, you may decide to delay taking money from your pension. It could be that you’re happy to stay in work or that you want to wait slightly longer to allow your savings to grow. If you’ve got a defined contribution pension, it’s sensible to check with your provider that you won’t miss out on any guaranteed benefit by doing this. If you’ve got a defined benefit pension, there’ll sometimes be a maximum age by which you can take your money, which is usually 75. You can also delay taking your State Pension to maximise the amount of money you receive. You’d get an extra 1% on top of your State Pension entitlement for every nine weeks you delay beyond your State Pension age. That’d be just under 5.8% extra per year.

Decide how much money you’ll need in retirement

There are a few questions you might need to ask yourself when it comes to working out how much money you’ll need to fund the retirement you’ve planned:

  • Do you want your income to be similar to what it is now?

  • Will your income be enough to pay for your outgoings such as household bills and rent/mortgages?

  • Will you need extra cash to pay for holidays and leisure activities?

  • Do you want to leave money behind for loved ones when you’re gone?

  • Do you need to factor in the cost of care?

The list can be endless, but there are ways you can factor in all of these questions when you’re making your retirement plan. Through the use of independent research, the Pensions and Lifetime Savings Association has calculated how much money you might need to fund three different levels of retirement:

  • Minimum: £14,400 per year for a single person or £22,400 per year for a couple. This could fund your basic needs with a little left over for fun such as one UK holiday each year.

  • Moderate: £31,300 per year for a single person or £43,100 per year for a couple. This could provide a little extra financial security with more flexibility to fund extras, such as buying a second-hand car every 7 years.

  • Comfortable: £43,100 per year for a single person or £59,000 per year for a couple. This could allow you more financial freedom with extra cash for a few luxuries, such as renovations to your house every 10-15 years.

Identify what savings you have

One adjustment that you may need to make once you’re retired is having to juggle several sources of income rather than just the one. Therefore it’s important to keep track of all the different savings accounts you have to make sure you can budget accordingly.

Since Auto-Enrolment was introduced in 2012, it’s now compulsory for an employer to enrol you in a workplace pension scheme when you start a new job as long as you meet certain criteria. It’s estimated that the average person working today will have up to 11 different jobs in their lifetime, so you may find that you have several workplace pensions by the time you come to retire.

You may have also built up cash in other products such as ISAs, or perhaps you’re lucky enough to own extra properties? These are all ways that you can earn additional income during your retirement, so it’s important to keep track of them and consider when might be a good time to access your money.

Trace your lost pensions

If you’re not sure how many pensions you have, you can use the government’s free pension tracing service to find any lost pensions. Once you’ve tracked down your old pensions, you may find that you’ve got extra money to factor into your retirement plan.

Consider combining your pensions

If you’ve got several pensions of varying amounts with different providers, it can be hard to keep track of them all. On top of that, you’re likely to be paying separate fees for each one.

Combining your pensions could simplify matters. One advantage is that you’ll only need to keep track of a single pot which can help you to know exactly how much you have, and how your investments are performing. You’ll also only have to pay a fee to one provider which could reduce the amount you’re paying in fees overall. You can start combining your old pensions today by transferring them to PensionBee.

Make the most of your pension contributions

Under the rules of Auto-Enrolment, you’ll usually pay a minimum of 5% of your qualifying earnings into your workplace pension each month, unless you opt out. Your employer will be required to pay a minimum of 3% into your pension pot. However, if you feel you can afford it, you may want to consider increasing your contributions. Some employers will have provisions to increase the amount they contribute as well and may match your contributions up to a certain limit. If you’re eligible, savers can usually get tax relief on pension contributions up to £60,000 or 100% of their salary (whichever is lower). You can see the effect that increasing your contributions might have on your pension savings by using our pension calculator.

Understand pension withdrawal options

Withdrawing from a pension can be quite different to receiving an income from a job as you’ll have more flexibility in what you can do with your money. Before you start looking at your withdrawal options, it’s good to remember that 25% of your cash will be tax-free and how you take that proportion will depend on the choices you make.

One option is to take out an annuity, which can be useful if you like the idea of continuing to have a regular monthly income. When purchasing an annuity you’re essentially paying a lump sum to an annuity provider in exchange for a guaranteed income over a set period of time or for the rest of your life.

Another option’s to access your savings using pension drawdown. This allows you to take out the money in your pension as and when you like whilst leaving the remainder invested. This option may suit you if you want a more flexible approach to withdrawing your money. For example, you may want to take a little extra one month to fund a holiday, but then withdraw less the next month when you have fewer activities planned.

Alternatively, you don’t have to choose just one option and can divide your savings between one or more withdrawal techniques. Just remember that you might need to weigh up how this affects the amount of tax you’ll pay in any given tax year.

Retirement plan checklist

To summarise, here’s your checklist to start your retirement plan:

  • Decide when you’re going to retire

  • Calculate how much money you’d like to retire with

  • Make a list of all your savings and investments

  • Start looking for lost pensions

  • Calculate if you can afford to increase your pension contributions

  • Consider if combining your pensions could help reduce admin and fees

  • Choose how you’d like to withdraw your pension.

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.

Last edited: 06-04-2024

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