How to plan for your retirement

There’s a lot to think about when making a retirement plan. It’s an exciting time for individuals and couples retiring. But your life is set to change in many ways so it’s good to make preparations and ensure that your finances are ready to keep pace with the change too.

Why do I need to plan for retirement?

A good financial plan can keep you in control of your money, help you stay on track financially and help you work out where you could be making savings.

Planning for retirement helps in other ways too; you will be able to receive assurances that you have the security you need with money, can keep the lifestyle you are accustomed to and have more flexibility if you want to make any changes. It should also allow you to plan all those exciting things you want to do now work is not filling your time!

The earlier you start planning, the more options you will have when it comes to organizing your income and outgoings.

Evaluate your pension options

There are three different pension options available in the UK, depending on the type of work you have been doing.

The state pension is given to all Britons when they reach pension age, provided that you have paid enough National Insurance over the preceding years. It is a regular payment from the government for as long as you live. There are two types of the state pension. The New State Pension came into effect in 2016, replacing the Basic State Pension which existed before it. Which pension applies to you will depend on whether you reached state pension age before the New State Pension came into force or after it, along with your gender. For information on which state pension you may be eligible for, have a look at this website.

The second type of pension is a workplace pension. This is the kind of pension built up by working for an employer who has contributed to your pension pot alongside your own contributions from your wages.

The third option is a personal pension fund. With this option, you will need to have set up a pension with a pension provider and regularly invested money to gain benefits for retirement.

Make sure you know of the whereabouts of all your pension pots. There may be a workplace or private pension scheme that you were entered into some time ago which you have forgotten about. The UK government has a pension tracking service in case you have forgotten about or have lost track of any pensions. For advice on how to check if you are missing any of your pension, read this and find the government’s pension tracking service here.

Workout your final income

Once you know how much money you will have available to you, then you can proceed with your plans. Based on your National Insurance payments over the years, you can apply for a state pension statement which gives you an estimate of how much pension you may receive. Your employer should also send you a defined benefit pension statement that will list how much you have paid in terms of taxes and what your estimated pension will be once you retire, so put in a request to get hold of that document as well. Add any other investments and savings you have, which may help with enhancing your income. Once you have all the information you need, you can evaluate your total income.

Decide how you will gain access to money

There are several ways you can access your retirement income. Which is best for you will depend on your personal circumstances.

Many people take annuities. ‘Annuities’ are the payments made at equal intervals of a fixed amount for the rest of your life. You are allowed to nominate beneficiaries to receive your annuities in case of death.

If you have chosen the personal pension option, then ‘income drawdown’ is a way for you to withdraw as much money as you want from your investment pot, to form your income.

Lastly, the option of withdrawing the full amount of your pension is also available. If you have big plans that need a large lump sum to fund them, this may be the only way you can finance it. With 25% of the amount being tax-free while the remaining 75% has a tax based on the current financial year rates, it has some drawbacks.

Defined benefit contribution plans

This is a type of pension plan in which the employer and employee both contribute towards the retirement plan by creating a pension pot and is different from the defined benefit pension scheme. The benefits gained from this plan depend on the investment earning and therefore, can be flexible. Once you are close to retirement, it makes sense to take all your money and utilize it for low-risk investment. Most of the pension funds have an option to do so automatically while others don’t. Therefore, you should start the process as soon as you know when you are planning to retire.

Find other ways to boost your income

After all the initial evaluation, if you feel that your income will be less than you want or need, then one option open to you is to invest some of your pension in something else that can earn you an extra income. Rental property for example, or a new business venture. If you do not feel able to take on any of these options, then another way forward is to pay more into your pension pot and delay the date from which you want to start withdrawing money. This will increase the total pot value, and eventually, you will have more money to use, but it does obviously mean you will need to continue working for longer than you might ideally have wanted to.

Manage your budget accordingly

When planning your retirement, you also need to think about your expenditure, and not just your income. Planning a budget will help with this. Calculate the total monthly amount you currently spend, and then start to look at ways of making savings. Think about the things which will take on more importance when you’re retired than now, and eliminate the things which will not be as important to you in the future. Look at money-saving websites for advice on how to reduce your spend on things like utility bills. Also, inquire with your local council about discounts and schemes for pensioners that could save you money.

Clear your debts

If you genuinely want to benefit from your retirement and live off a decent, comfortable income, then you should try to pay off your debts before you retire. Since you won’t have any new source of income, having debts to pay could place a massive burden on your retirement plans. Most people who have not managed to clear their debts before retirement end up having to take a lump sum payment on retirement to pay them. This can significantly eat into your pension pot however so isn’t ideal. Make sure you know how much money you owe, what your interest rates are and proceed with paying the highest interest rate first. Get advice from a debt specialist if you are struggling with money that you owe.


Once you have evaluated all the factors, it becomes easier to make a plan for retirement. The earlier you start planning the more options you will have open to you so speak to a financial advisor or pensions specialist to get your plan in place as soon as you know when you are going to be finishing work. You are then in a position to begin enjoying your new life, free from the worry about how your finances are going to cope with the adjustment.

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