Wed. Nov 30th, 2022

Retirement planning: how to plan for retirement

Where to begin

Retirement is a chance to do more of what you enjoy. When it comes to planning for your retirement, you need to think about what you’d like your life to be like. Do you want to move to a new area? Go on holidays? Run a car? Have evenings out? All of these cost money, and working out how you would like to spend your time can help you envisage how much income you’ll ideally need. This is even more the case if you hope to retire early.

Now is the time to think big and put all your ideas on the table. Deciding what’s achievable can come later. Once you have an ideal retirement in mind, talk it through with your financial adviser to estimate the level of income you’ll need, and how much flexibility.

Decide when you should retire

There is no set retirement age in the UK any longer, so you can carry on working as long as you like (or as long as you need to). If you have a defined contribution pension then you can access it at any age from 55 onwards, but you will probably need to wait longer if the money is to last for your whole retirement.

Flexible access to your pension makes it easier to retire gradually by cutting your hours. Continuing to work part-time may mean you can save more of your pension for later, or even keep contributing to it. Similarly, it may help to have extra funds during this earlier, more active phase of your retirement.

Be sure to find out your State Pension age, when you will begin to receive this small guaranteed pension from the government. If you retire before reaching it, you will have to find extra money in the meantime.

Work out your likely income

Now it’s time to predict your likely income in retirement, to see how well it measures up to your expected needs.

If you have a number of different workplace pensions, you may need to track them down (you may even have forgotten about some of them). Then you will have to choose whether to combine them or keep them separate. The same applies to any personal pensions you may have.

Once you have identified all your pensions, you need to find out how much is in them. A financial adviser can help you do this, and can also estimate what kind of income this could deliver.

Then work out what your State Pension income will be – you can get a forecast from the government website. (Remember you’ll only receive this from your State Pension age.)

Finally, consider any other income you might have, e.g. from part-time work, investments or other assets such as property. Find out more about predicting your retirement income.

You can estimate your income from workplace or private pensions using The Unbiased Pension Calculator.

Will your income meet your needs?

Think again about your retirement goals and preferred lifestyle, and the likely cost of these. Is the cost more or less than your predicted income in retirement?

If less, that’s great news – it means you should be able to afford your preferred retirement, with a safety margin. But if you think you’ll need more income, then talk to your adviser about ways to maximise your retirement savings – such as topping up your pension.

Drawing your pension

Another thing to think about in advance is how you will draw your pension. The way you take an income from your pension savings can be just as important as how big those savings are.

There are several different ways to access your pension – some bring greater flexibility (but greater risk), while some offer greater security (but less flexibility). However, it is possible to combine different methods to achieve the balance that suits you. Your adviser can be a real help here.

What you need to do near retirement age

As you get nearer to retirement age, there are a few people you need to speak to. Firstly, chat through your plans with your employer. It will give them the chance to offer you an alternative, or let you know how the process works at the company. You’ll also need to contact HMRC because your tax code should change when you retire. And you need to get in touch with the Department for Work and Pensions to inform them of if, and when, you are going to start drawing your state pension.

You’ll be planning for a long and happy retirement, but now is in any case a good time to update your will too, in case the unexpected happens. Also update your expression of wish on your pension, as pensions are not covered by wills.

Retirement and beyond

Hopefully, your retirement will mark the beginning of many new experiences. But remember it is not a single event, but a whole period of your life made up of different stages. You will therefore want to continue looking ahead, probably updating your plans as you go.

Take a look at some real-life retirement planning advice:

Find out more about later life planning.

Why is retirement planning important?

Planning for your retirement is one of the most important aspects of financial planning. From saving for the future to deciding how much money you’ll be able to draw on, it’s never too early to start thinking about what life after work should look like.  

Unfortunately, retirement doesn’t spring out of the ground. A comfortable retirement is the work of years of saving and planning, so to make sure that you’re comfortable and are able to do everything you want to do when you finish working, it’s time to start planning.  

Around five million people, or a quarter of people approaching retirement age, are at risk of not having enough money to enjoy the retirement they want. And while this doesn’t always mean people won’t enjoy their retirement, it means that they might need to be make some sacrifices to afford some things over others.

Planning ahead lets you set aside enough money to do the things you care most about, so it’s never too early to start planning for the future.


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