Retirement is often thought of as a single event, but the preparation for it is a process — one that ideally starts several years before you actually stop working. The decisions made in the run-up to retirement have a significant impact on the income you receive and the flexibility you have once you get there.
If retirement is on the horizon, here is a practical framework for making sure you are ready.
Locate and review all your pensions
Over a working life that involves multiple employers, it is easy to lose track of old pension pots. The UK government’s pension tracing service can help you locate any workplace pensions you may have accumulated over the years. Once you have the full picture, you can assess how each is performing, what charges are being applied and whether consolidating any of them makes sense.
As well as your workplace pensions, check your personal or self-invested pension arrangements and get an up-to-date projection for each. Understanding the total picture is the essential starting point.
Check your State Pension entitlement
Your State Pension forms part of your overall retirement income, and it is worth checking your forecast sooner rather than later. The government’s online service allows you to see how much you are on track to receive and whether there are gaps in your National Insurance record that it would be worth filling. The full new State Pension requires 35 qualifying years of National Insurance contributions.
Knowing your State Pension entitlement helps you calculate how much additional income your private pensions need to generate.
Be aware of the pension access age change
The minimum pension access age is currently 55 for those with personal pensions and SIPPs. This is rising to 57 in 2028 for anyone born after April 1971. If your retirement plans are built around accessing your pension at 55, this is worth factoring in if the change affects you.
Think carefully about how you will draw your benefits
One of the most consequential decisions in retirement planning is how you choose to take your pension. The main options are:
Drawdown, which keeps your pension invested and allows you to take income and lump sums as needed, with flexibility but no guarantee of income.
An annuity, which provides a guaranteed income for life in exchange for some or all of your pension fund, with security but less flexibility.
A combination, which is what many people find works best — using part of the fund to buy guaranteed income and keeping the remainder in drawdown for flexibility and potential growth.
The right answer depends on your health, your other income sources, your attitude to risk and how important income certainty is to you. It is one of the decisions where taking independent advice makes the most tangible difference.
Reassess how your pension is invested
As retirement approaches, the case for gradually reducing investment risk typically strengthens. A portfolio that was appropriate in your forties may carry more volatility than is comfortable when you are only a few years from drawing benefits. That does not mean moving entirely into cash or very low-risk assets, which can create other problems, but reviewing the asset allocation in light of your timeline is a sensible step.
Build a retirement budget
Before you stop working, it is worth building a realistic picture of what your income will be and what you expect to spend. Some costs will fall — commuting, work clothes, pension contributions. Others may rise — leisure, travel, healthcare, home maintenance. Comparing projected income against anticipated expenditure gives you a clear view of whether there is a gap to address.
It also gives you the confidence that your plan is workable, which has its own value.
We work with individuals approaching retirement across Worcestershire and Warwickshire, helping them understand their options and make decisions that give them confidence in the transition. If retirement is approaching and you would like to review your position, we would be glad to help.
A pension is a long-term investment. The fund value may fluctuate and can go down as well as up. Tax treatment depends on individual circumstances and may be subject to change. This article is for information only and does not constitute personal financial advice.