Retirement
Be prepared
Retirement Planning
One thing retirement is not, is an age. Not anymore, anyway. Gone are the days of being told to stop working one day and pick up your State Pension the next. Today there are pension freedoms to decide when and how you retire. Planning your retirement as early as possible can provide you with the flexibility you need.
Retirement planning is preparing for your future today so that you can continue to meet your goals and dreams. It is important because it can help you avoid running out of money in retirement.
There are many things to consider as you approach retirement. It’s good to start by reviewing your finances to ensure your future income will allow you to enjoy the lifestyle you want.
Early planning can help you with:
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Ensure you can have your desired retirement lifestyle
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Retire at the age you would like
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Make wiser present-day decisions
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Understand your needs and requirements
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Stay on top of inflation
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Make the most of tax efficiencies
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Enjoy a stress-free retirement
There are some handy online tools which can help you estimate the income you’ll get when you retire. This will include income from defined benefit and defined contribution schemes, plus either the basic State Pension or the new State Pension, depending on when you were born.
Try the Money Helper Pension Calculator below, you can alter your retirement age to see how that affects your income. You can also see how increased contributions or taking a smaller tax-free lump sum affect your yearly pension:
Pension Calculator
It’s never too late
Planning for Retirement Now
Retirement planning can be daunting. A lack of time and a feeling of being overwhelmed can make many people put it off. It’s never too late to start planning, although starting earlier is always best.
Not everyone has the luxury of choosing their retirement age, as health concerns or personal circumstances can take the decision out of our hands. However, if you’re still a while from retirement, it’s sensible to consider when you’d like to retire, particularly if you’re set on doing so as soon as possible.
- Start saving and keep saving
- Know your retirement needs
- Learn about your pension and what your likely income will be
- Assess risk tolerance (the amount of loss an investor is prepared to handle while making an investment decision) vs. goals regularly
- Don’t touch your retirement savings
- Make a Will
- Consider estate planning so you or your family don’t pay more tax than you need to
Successful retirement
Building Your Retirement Pot
The secret to a successful retirement is to slowly and surely build up your retirement pot. Exactly how you do that will depend on your situation – but there are lots of things you can do.
Nearly all people who are currently working, or have worked, are likely to have been a member of a pension scheme. This could be via an occupational pension scheme, set up by an employer for their employees, or an individual pension set up by a person on their own.
How much do I need to retire?
Saving
Types of Pensions
A pension is a pot of cash that you, and your employer, can pay into – which you get tax relief on – as a way of saving up for your retirement.
It is a tax-efficient way to put money aside for later in life, to provide income for when you retire. It is best to put in as much as possible, as early as possible.
Depending on the type of pension you have, you and your employer can pay into it. The government also ‘contributes’ to your pension in the form of tax relief.
Once you turn 55 (expected to rise to 57 in 2028) or retire, you have a number of options for how you choose to take your pension income.
The state pension is a pension you’ll receive from the government once you reach the state retirement age (currently rising from 65 to 66), provided you have at least ten years’ worth of qualifying national insurance contributions or credits and meet the other eligibility criteria laid out by the government.
The amount you get will depend on the national insurance (NI) contributions you’ve made throughout your working life. The government will then pay you your state pension – a guaranteed income – for the rest of your life.
The basic state pension is taxable, but if you don’t have any other income, you won’t be taxed. You only start to pay tax if you earn more than £12,570 (in the 2024/25 tax year).
Find out more about pensions in our Pension 101 insight here.
Find out your state pension age
A personal pension, also known as a private pension, is a type of pension you can set up yourself. You can have a personal pension even if you already have a pension through your employer.
There are three main types of personal pension:
- Simple personal pension – Offer various investment strategies for you to choose from depending on your personal circumstances and attitude to risk
- Stakeholder pension – There are strict government rules about how these are managed. They have low minimum contribution amounts, few investment options and caps on how much the provider can charge
- Self-invested personal pension (SIPP) – Often more suitable for large contributions. You control how your money is invested so often better for experienced investors. They may also have higher charges
Also known as company pensions and occupational pensions, are offered by employers. Employers in the UK are required to have a pension scheme set up and they must automatically enrol their eligible employees.
- Defined contribution pensions scheme – You pay in a percentage of your salary and your employer also contributes to it. The income you get in retirement isn’t guaranteed, it depends on how much has been contributed and the performance of the investments.
- Defined benefit pension scheme – You get a specified amount as income when you reach retirement age. Your pre-determined retirement income is based on how long you’ve worked for your employer and your salary when you retire.
What is the “Triple Lock”?
The triple-lock system benefits those receiving the state pension. It determines how much pensioners will receive in state pension income each year. This means every April the state pension amount increases by the highest of:
- The previous September’s inflation rate (based on the Consumer Prices Index); or
- The increase in average earnings; or
- 2.5%
Will the triple lock end?
There are currently no plans to end the triple lock, but there are frequent debates on how affordable it is to continue. For example, State Pension increased 10.1% in 2023 and 8.5% in 2024, costing billions.
Legally, the government is only required to increase State Pension in line with the average increase in wages. This means they could decide to scrap the triple lock in the future. But, as this would be a very political decision, it’s unlikely be an overnight change.
Adjusting
Preparing Emotionally for Retirement
Most major life-changing events, such as marriage or divorce, involve an ongoing process of emotional adjustment. Retirement is no exception. You may grieve the loss of your old life, feel stressed about how you’re going to fill your days or be worried about it affecting your relationship with your spouse or partner.
Many new retirees find that after a few months the novelty of being on “permanent holiday” starts to wear off. You may miss the sense of identity, meaning, and purpose that came with your job, the structure it gave your days or the social aspect of having co-workers.
Some new retirees even experience mental health issues such as depression and anxiety triggered by increased loneliness and decreased social connections.
If you are worried or struggling seek help. Talk to your local Age UK to see what advice they can give you to help prepare for retirement.
Talk to your local AgeUk
