As you get closer to leaving the workforce it’s good to start thinking about your retirement options and the choices you’ll need to make. We like to help keep things straightforward so our checklist can help you prepare for retirement.
- Consider when you would like to retire.
Firstly, you need to think about when you would like to retire.
The State Pension forms part of most people's retirement plans. However, the current State Pension age is 66 (rising to 67 by 2028) which may not be in line with your plans. You can check your State Pension age on the government's website.
The age at which you can access money from most pension plans is currently 55 (rising to 57 from 6th April 2028). With workplace pension schemes, your retirement age may have been chosen for you by your employer. We advise that you check this matches your intended retirement age as this can impact the underlying investments in your Pension.
- Understand your options
You have a number of options for how to access the money in your pension pot and it's important that you understand each option to determine which is most suitable for you.
- Take your money flexibly from your Pension (income drawdown).
- Take some or all of your Pension as a cash lump sum.
- Use your Pension to purchase a guaranteed income for life (annuity).
- A mix of these options.
Check with your provider that your Pension plan offers the options you require and ensure that you know the different tax rules for each option.
- Calculate how much income you will need in retirement
It's important to work out your ideal annual income in retirement. This amount will depend on your lifestyle and goals. To prepare yourself for retirement and to help you plan ahead, it’s a good idea to make a budget.
We advise breaking down your future spending into two categories:
- Essential expenditure – this is money you need to cover your basic living needs, such as housing costs, utility bills, groceries and day-to-day travel.
- Non-essential or ‘discretionary’ income – this is money for the things you like to do day-to-day and includes things like eating out, holidays and leisure.
You can find out more about how much you might need in retirement by checking the Pensions and Lifetime Savings Association Retirement Living Standards.
With a good idea of your spending needs in retirement, you’ll be able to work out the income you’re likely to have to spend.
- Review your Pensions
You'll need review your existing Pension savings and consider whether they can support your income in retirement. You can start by getting an updated valuation and most providers will also provide you with a 'projection' of what your pension pot may be worth at retirement based on a number of factors.
We also recommend using a Pension calculator to get an idea of what your Pensions may be worth. Comparing the results against your income requirements will give you an accurate indication of any shortfalls or surplus in your retirement plan.
You can also use the Pension Tracing Service to track down any lost Pensions from previous jobs.