When you’re busy juggling work and your home life, retirement is often one of the last things on your mind.
After all, it can be a big enough challenge to work out how to stay out of the red before your next pay day, especially as living costs continue to soar, without having to think about your pension too.
However, planning for retirement doesn’t have to be horribly time-consuming or complicated. Our seven-step checklist can help you make sure you’re on track to achieve the retirement you want.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
1. Know the value of your pensions
Your starting point when pension planning should be to make sure you have a clear idea of the current value of your retirement savings.
This will usually change over time, as the value of the investments your retirement savings are invested in can go up and down. But knowing roughly how much you’ve got now can help you to decide whether you need to be saving more or if you’re on track for retirement.
You should be sent a statement every year by your pension provider, which tells you how much you’ve got in your pension. If you can’t find yours, get in touch with your provider and ask them for a current value. Find out more in our article Your annual pension statement explained.
Make sure you track down any pensions you might have lost or forgotten about, too. According to the Department for Work and Pensions (DWP), the average person has 11 jobs in their lifetime – that’s a lot of pensions if you’ve signed up to your company pension scheme each time. There is a dedicated section of the government’s Gov.uk website which can help you find contact details for your workplace or personal pension scheme if you no longer have them. Our article Tracing lost pensions has lots of other tips on how to locate missing pensions.
2. Check where your pension is invested
Once you’ve located all your pensions, have a look and see where your savings are invested. Again, you should be able to find this information on your pension statement.
Your pension provider will usually offer several different funds to choose from – some will be riskier than others. If you don’t know which one to go for, your provider will usually invest your pension in what’s known as their ‘default fund’.
The default fund tends to invest in riskier investments like stocks and shares when you’re younger and then will gradually move your savings into less risky assets such as bonds and cash as you near retirement to help reduce the risk of the value of your pension plummeting just before you stop work.
It’s worth trying to get to grips with where your pension is invested, as there might be other funds that suit you better or that come with lower fees. Our article Where is my pension invested? may be useful. If the value of your pension has fallen recently due to current market volatility, try not to panic. Our article Four ways to weather stock market storms explains some of the ways you might be able to protect your pension from sudden market swings.
Unless you are highly confident making your own investment decisions, it can be helpful to speak to an independent financial advisor who can help you find the best pension funds for you. If you need advice but don’t know where to start, you can read our guide on How to find the right financial advisor for you.
3. Work out how much income you’ll need
You can give yourself a rough idea of what sort of income you’ll need when you retire by sitting down with your latest bank statement and adding up how much goes out of your account each month on all the essentials such as food, utility bills, Council Tax. You’ll then need to add some extra for perks such as holidays and eating out. Learn more in our guide £14,400 annual income needed to retire, say pension experts.
Don’t forget that the amount you’ll need to live on often falls once you stop working as you’ll no longer have to fork out for things like travel costs or work clothes and, if you’re a homeowner, hopefully you might have finished paying off your mortgage by then. Find out more in our article How much should I save for retirement?
4. Remember to factor in the State Pension
It’s not just your workplace and any personal pensions that you need to factor in when planning for retirement. You’ll usually be entitled to a State Pension too.
You’ll need to have at least 10 ‘qualifying years’ of National Insurance Contributions (NICs) to be eligible for a State Pension. To get the full State Pension, which is £203.85 a week in the 2023/24 tax year, rising to £221.20 in the 2024/25 tax year, you’ll need to have at least 35 qualifying years of NICs. Find out whether you qualify for a State Pension and how much you’re likely to get on the Government website here.
You can also request a statement from the Government detailing your National Insurance contributions to date and the number of qualifying years you have built up by calling them on 0300 200 3500 or by filling in their online form – it’s helpful to have your National Insurance number to hand. Learn more about the State Pension in our articles How the State Pension works and State Second Pension and SERPS explained.
5. Think about when you want to retire
Having a target retirement age in mind can help you do your sums and work out roughly how many years’ worth of income you might need once you’ve finished working.
You might, for example, decide you want to continue working beyond the usual retirement age of 65, or to go part-time for a few years before you stop work fully.
Of course, no-one knows exactly how long they’re going to live, but according to the Office for National Statistics, current life expectancy for males is 79.2 years and 82.9 for females. The challenge with using average life expectancy however is that there can be quite a large variation between individuals and ironically the older you are, the higher your life expectancy is. For example – the average life expectancy for those that have already reached 65 is 18.6 years for men and 20.9 years for women.
That means if you are planning to stop working when you’re 66, you will need a retirement income for roughly 20 years, although it can make sense to overestimate your life expectancy as you won’t want to end up outliving your pension savings. Learn more in our article Retirement age: When can I retire?.
6. Can you afford to retire?
Once you’ve got your retirement date in mind, you’ll need to consider whether your savings will be enough to provide you with the income you want when you finish working.
According to the Pensions and Lifetime Savings Association’s latest Retirement Living Standards research, to have a ‘moderate’ living standard in retirement, you’ll need an income of about £41,300 before tax if you’re a couple, or £31,300 if you’re single. The annual income you need in retirement rises to £59,000 a year if you’re a couple wanting a ‘comfortable’ retirement, or £43,100 a year if you’re single.
Bear in mind that everyone’s circumstances are different, so you may well need more or less to fund the type of lifestyle you want in retirement. As a general rule of thumb, experts suggest you need around two-thirds of your final salary at retirement after tax to maintain your current lifestyle, but this will very much depend on your personal requirements. Find out more in our guide Can you afford to retire?
7. Start considering your options at retirement
Most pensions nowadays are defined contribution schemes, where your money is invested and the amount you get when you retire will depend on how much you paid in and how your investments have performed.
If you’ve got a defined contribution or money purchase pension, there are lots of different options available when it comes to taking an income from your pension, including drawdown and annuities. You can find out more about drawdown in our article What is pension drawdown and how does it work? and more about annuities in our guide Annuities explained.
If you’re lucky enough to have a defined benefit or final salary scheme, you’ll get a guaranteed income at retirement which can make it much easier to plan your retirement budget. Check with your scheme’s administrator if you’re not sure when this income will start being paid. Find out more in our article Your options at retirement and learn about the differences between defined contribution and defined benefit schemes in our guides What is a defined contribution pension? and What is a defined benefit pension?
The Government’s Pension Wise service, run by the Pensions Advisory Service and Citizens Advice, provides people aged 50 and above who have one or more defined contribution pensions with free guidance on their pension choices at retirement. You can give them a call on 0800 138 3944 to book a free appointment, or you can book one via their website.
It’s always worth taking advantage of a free appointment with Pension Wise, however if you want advice that’s tailored to you specifically, or you only have a defined benefit pension or pensions, you’ll also need to speak to a financial advisor, as Pension Wise can only provide general guidance and not individual recommendations. In this case, our guide How to find the right financial advisor for you might be helpful.
If you’re considering getting professional financial advice, Unbiased is offering Rest Less members a free pension review. It’s a chance to have a qualified independent financial advisor (IFA) take a look at your pension arrangements and give an unbiased assessment of your retirement savings.
The review is free and without obligation, but if the IFA feels you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
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