Retirement should be the longest holiday of your life, so many of us will be looking at ways we can boost our income when we stop work.
The simplest way to do this is to increase your pension contributions. Even if you think you can’t afford to do this, it’s worth remembering that even a slight increase can make a big difference over the long term. However, there are plenty of other ways you might be able to boost your retirement income, including putting more money into tax-efficient ISAs, and choosing where your pension savings are invested rather than simply relying on the ‘default fund’ which contributions are usually paid into.
Here, we explain how much income you’re likely to need when you stop working, as well as ways you might be able to supplement it.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
How much income do I need to retire?
Around 35% of UK adults aged between 22 and 65 are on track to retire on less than the minimum amount needed for a basic standard of living in retirement, according to a recent Scottish Widows report.
A single retiree would need around £14,400 in retirement income each year to ‘live with dignity’ and pay essential bills, calculations from the Pension and Lifetime Savings Association (PLSA) show. You can read more in our article How much do you need to retire comfortably?
However, the Scottish Widows report found that a rising number of pensioners are renting in retirement, and the cost of rent isn’t factored into the PLSA’s calculations. Rental costs make up as much as 70% of pensioners’ retirement incomes, and as much as 130% in London. According to the International Longevity Centre, the number of private renters aged 65 and over is projected to double by 2046, to reach 12% of households in that demographic.
The report shows that a further 18% of adults are on track to afford a ‘minimum’ lifestyle in retirement to cover basics such as food and bills, while leaving them with some disposable income.
On average, men are on track to receive an income of £19,000 per year in retirement, compared to £12,000 per year for women, according to the report. Women receive less because of breaks away from the workplace to care for their family, and part-time employment. Read more about this in our article Women and the gender pension gap.
Glancy said: “Last year’s retirement report highlighted the impacts of the pandemic, cost of living and wage stagnation. This year the pressure seems to have intensified due to increasing inflation and interest rates continuing to climb.”
The research is based on a survey of more than 5,000 British adults who were asked about their preparations for retirement and their expectations of post-work life.
The report estimated that around a third (36%) of adults are likely to be able to enjoy a ‘comfortable’ lifestyle in retirement, with an annual income of at least £43,100, which should be enough to pay for luxuries including several holidays a year and includes the State Pension. The remaining 11% are on track to experience a ‘moderate’ standard of living in retirement.
The State Pension often forms the bedrock of people’s retirement income. The new full State Pension is currently £221.20 a week in the 2024/25 tax year, and is set to increase by £472 in April 2025, in line with wages growth, whilst the basic State Pension will increase by £363 a year in 2025, from £169.50 a week to £176.45. Find out more in our article What will the State Pension be in 2025?
Ways to boost your income in retirement
If you’re worried you won’t have enough to live on comfortably when you retire, there are a number of ways you may be able to boost your retirement income.
1. Top up your pension
Increasing your pension contributions in the run up to retirement can help boost the amount of income you get in retirement, although as your contributions are invested, you must remember that there are no guarantees.
Alice Shaw, Wealth Planner at Succession Wealth said: “Sometimes the simplest solutions are the most effective. For those lucky enough to receive a pay rise in line with inflation every year, increasing your pension contributions, even by just 1%, could increase your eventual pension pot.
“The reason why a relatively small increase in pension contributions can result in an increase in the value of your pension pot is because of the power of compounding. Compounding is when you earn interest on both the money you’ve saved and the interest that money attracts.”
One of the best things about paying into a pension is the tax relief you get on your contributions, and you can continue to benefit from this right up until you reach the age of 75.
Under current rules, the amount you’ll receive depends on which income tax bracket you fall into. Most UK taxpayers automatically get tax relief on pension contributions at the basic rate of tax which is 20%. So, if you wanted to add £100 to your pension, you’d only need to pay in £80, as the government would add the £20 it took in income tax.
Higher rate taxpayers can claim back a further 20% in relief via their tax return, while additional rate taxpayers can claim an extra 25%. Find out more about pension tax relief in our article How pension tax relief works and How do I reclaim higher rate pension tax relief?
Remember that you can contribute the lower of a maximum of £60,000 into your pension, or 100% of your earnings and benefit from tax relief on this amount each year – this is known as your annual allowance. Find out more in our guide How do pension allowances work?
2. Review your pension investment strategy
Worryingly, only 36% of people know their pension is invested in the stock market, according to research by Hargreaves Lansdown. One third (34%) said it wasn’t and a further 30% said they were unsure.
A spokesman for Hargreaves Lansdown said “These findings point to a fundamental misunderstanding about pensions and could be one reason people do not engage.”
If you’ve signed up to a pension scheme through your workplace that’s linked to the stock market, your money will be invested in a default fund unless you actively choose to invest it elsewhere. If you don’t know what your pension scheme default fund is invested in, speak to your scheme provider or check online. If it’s not where you’d like your pension to be invested, do something about it, or seek advice on the best options for you based on your investment time frame and your approach to risk.
Charlotte Ransom, chief executive of Netwealth, said; “In order to make the most of retirement savings, it’s important to make a proactive decision about what your pension and retirement savings are invested in, and to ensure you have exposure to appropriate returns to line up with your needs during retirement. Everyone’s retirement will be different and will be reflected in their individual financial plans.”
Find out more in our article Where is my pension invested?
3. Could you delay taking your pension?
If you’re not ready to stop working at retirement age and your employer is happy to let you continue working, or you’re planning to go part-time before you retire fully, you might want to consider delaying taking money from your pension beyond retirement age, if you can afford to.
The longer your pension remains invested, the more time it has to potentially grow in value and hopefully provide you with a higher retirement income when the time comes. There are no guarantees, however, and there’s a chance you could end up with less than you put in, so it’s important to understand the risks involved. Find out more in our guide Eight reasons you might decide to defer your pension.
4. Could your property help you boost your income?
Another way of potentially significantly boosting your retirement income is to rent out a spare room in your home if you have one, as you can earn up to £7,500 a year tax-free under the government’s rent a room scheme. Read more in our article Renting out a room – what you need to know.
You can also rent out free space as storage, or a parking space, or you may also have unused or unwanted items in your home that you can sell. You can find plenty more ways to make extra income in our article 24 ways to make extra money and boost your income.
5. Do you qualify for Pension Credit?
If you’re on a low income, make sure you check whether you’re eligible for any government benefits, such as Pension Credit. This can boost your retirement income, and enable you to claim other benefits, including the Winter Fuel Payment, to help you cover the cost of your energy bills.
Pension Credit is made up of different parts. The Guarantee Credit part of Pension Credit tops up your income to a guaranteed weekly amount, which in the 2024/25 tax year is £218.15 if you’re single, or £332.95 if you’re in a couple. Find out more in our article Pension Credit explained, and learn whether you might be entitled to other benefits in our Government benefits: the basics section.
Seek professional help
It can be difficult to know how best to maximise your retirement savings, particularly during periods of economic and political uncertainty.
If you’re looking at your options for producing an income from your pension savings, you can receive free guidance from the age of 50 and above from the Government’s Pension Wise service.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
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