Pre-retirement Planning

With life expectancy in the UK rising year on year, it is not unreasonable to look forward to a retirement that is almost as long as the time you spent at work.

Retirement is likely to be such change to your lifestyle and circumstances that the sooner you begin the prepare for it, the better your chances of enjoying the retirement you dreamt about and deserve.

To help you start that preparation, we have addressed a number of points relating to this period of pre-retirement:

Can I afford to retire?

Can I afford to Retire?

In the past, you might not have had much choice in the matter – you stopped work when you reached the age of 65, whether you could afford to or not.

With the removal of a statutory retirement age, employers who are entirely content to employ older workers and a proliferation of different sources of workplace and personal pensions – the choice is very much your own.

Please visit our section on Pensions for more information.

But can you afford to retire whenever you choose?

the longer your retirement, the more money you are going to need – for a longer period of time;

  • people often underestimate the length of time they still have to live – and the number of years in which their retirement therefore needs to be funded;

  • how much money you need of course depends on how much you spend, and this varies from one person’s lifestyle choices to another’s;

  • you no longer have the expenses associated with getting to and from work, but the extra amount of time you spend at home, taking holidays, or following new hobbies and pursuits may increase your household and recreational expenses;

  • working part-time might help to stretch out the funds you have available;

  • apart from any income you continue to earn, though, your retirement is likely to be funded by the pension schemes to which you contributed during your working life – National Insurance contributions for your State Pension, plus the proceeds of workplace and personal pension schemes;

  • before you are able to decide whether you can afford retire, therefore, you need to know the amounts in each of your pension pots;

  • as important as the immediate value of each of your pension pots is the way in which the amount available over the longer term is affected by just how much you choose to withdraw and when;

  • the rules on pension schemes today are generally designed so that you may use those funds as flexibility as you choose.

Stages of planning retirement

Retirement Stages

Planning when to retire – and whether you can afford to do so – needs to take into account the journey you are making through life in retirement and the changing spending habits that accompany those changes.

In order to understand those changes, some sources – including a story in the Daily Telegraph newspaper – identify three basic retirement stages:

Active retirement

  • there is little doubt that retirement gives many people a new lease of life;

  • the time has come when you are free to do all of those things you always wanted to do, but never had the time squeezing it in with work;

  • in this first stage of retirement, you may be blessed with good health and sufficient energy to try lots of new things;

  • that might include travelling to see more of the world, taking up new sports, hobbies and interests, involving yourself in charity work, writing that novel that is said to be inside all of us, or simply spending longer times with family and friends;

  • this is a period of such active retirement that you might even decide to be your own boss for once and start up a new business;

  • the earlier the age at which you retire, of course, the longer this first stage of retirement might be;

  • even so, your money is being used to support an active lifestyle, and you need to keep in mind the need to marshal your resources as you gradually move into the next stage of retirement;

Passive retirement

  • after 10 to 15 years of your new lease on life, however, things might begin to slow down;

  • depending on your outlook, attitudes and general disposition, you may no longer have the patience or energy to maintain a life that was quite so active;

  • this might be because your general state of health is beginning to fail or because the money you once enjoyed from your pension pots no longer seems to go around quite so far – unless you have managed to protect your retirement savings from the inevitable effects of inflation;

  • although a more sedentary lifestyle might mean that you are spending less money, inflation may also be eating into the spending power of your income from pensions;

Supported retirement

  • the age at which you move into this final stage of retirement of course varies widely from one individual to another;

  • it is a time marked by a noticeable decline in health and encroaching infirmity;

  • as your health begins to decline, you might need more support at home, including additional domestic or nursing care;

  • as time goes on, that supported living might mean your moving into sheltered housing or a nursing home;

  • unfortunately, it may also be a time of increasing financial pressure as the pension on which you were previously living quite comfortably, is now being stretched to its limits by the costs of the care you need – or may simply not be enough;

  • preparing for these financial strains is something best done during your pre-retirement planning, when a dependable savings strategy may now start to pay dividends.

Saving for retirement

Saving for Retirement

However you choose to spend your retirement and however quickly you progress through the notional “three stages”, you continue to need money to live on and to support your lifestyle at any particular point in time.

Saving for the day you no longer have a regular income from work, but must rely on some form of savings to see you through a full and enjoyable retirement – and sooner you start making provision for those savings the better.

Saving for your retirement is an essential part of pre-retirement planning – and is likely to begin as early as your 20s or when you start work:

In your 20s

  • retirement is likely to be the last thing on your mind when you first start work;
  • but the sooner you join a pension scheme, the more your savings are going to grow;
  • the initiative is yours, since you are unlikely to be able to survive for long on whatever basic State Pension is available when you finally retire;
  • many employers operate an “auto-enrolment” scheme as part of your remuneration package and entry into the workplace pension – a saving scheme into which your own contributions are also joined by contributions from your employer and even the government (by way of tax relief on those contributions);
  • so, do not be tempted to opt out of any auto-enrolment that is offered without seeking independent financial advice;

In your 30s

  • you want to buy your own home, get married and have children – and that all costs money;
  • despite the temptations, now is not the time to drop contributions to your pension scheme or other forms of long-term saving you have arranged

​In your 40s

  • there are only 20 or so years to go until your retirement;
  • if you are lucky enough to have a final pension scheme, stay in it;
  • if you paid off your mortgage now, the money you save might be used to create your own Self-Invested Personal Pension (SIPP);

In your 50s

  • this is the decade (age 55) in which you are legally entitled to withdraw a personal pension;
  • but remember that the State Pension retirement age is rising all of the time, so those benefits might be longer in coming that you expected;
  • there is less time now for your current pension fund to grow, but you might consider increasing your contributions to it if your salary and circumstances allow;

In your 60s

  • this is likely to be the time for conserving and managing pension income so that it stretches long into the future of the retirement you have earned;
  • remember that you don’t have to withdraw all of your pension savings when you retire or take them all in one go;
  • there may be good reasons for delaying any purchase of an annuity, for example, until you are certain you are receiving a competitive return;
  • manage your debts, to ensure that servicing them is not an unnecessary expense, and when you qualify for your State Pension, remember that you may be liable for income tax on that too.

Pre-retirement Checklist

Retirement Checklist

Pre-retirement is the time for planning what happens during your retirement – not only what you propose to do, but more importantly perhaps, how you are going to finance your lifestyle when there is no longer a steady income from work.

To help you make the best use of that pre-retirement planning window, here is a brief checklist of the issues you might want to address:

Your income

  • find out how much your pension or pensions are worth;
  • the State Pension depends on the number of contributions you have made and the maximum amount payable currently stands at £155.60 a week (as at February 2017);;
  • income from any final salary pension scheme is also relatively easy to calculate;
  • you will have received an annual statement on the value of any defined contribution pension, but write to ask what you are likely to get when you retire;
  • use the free, online Pension Tracing Service to help track down the details of any pension providers you might have lost contact with and read our lost pensions section;
  • check whether you have other savings accounts or investments generating an income when you retire;

Pension fund investments

  • where your pension pot is currently invested with the prospect of enjoying growth, make sure that you are comfortable with the risks and spread of such investments, switching to lower-risk ones as your retirement date draws near;

Increasing the value of your pension

  • as time rolls on, your options become more limited – but you might consider making additional contributions into the scheme whilst you are still able to do so and/or delaying the date on which you start to use and withdraw funds from your pension pot;

Your budget

  • when you have determined the income you are likely to receive, the other part of the equation is to budget carefully for the expenditure you are likely to have – bearing in mind that your need to spend money may fluctuate quite widely during the course of your retirement;


  • whatever age you decide to retire, you might want to aim to be as free of debt as your circumstances allow – your income is almost certain to be reduced after your retirement and the cost of servicing your debts therefore become disproportionately more onerous;
  • a report by the Mirror newspaper estimated that in 2016, the average person owed some £34,000 in debts on the date of their retirement – comprising outstanding mortgages, loans, credit card balances and overdrafts;
  • paying off your debts might require a careful balance between the relative advantages and disadvantages in using any lump-sum pension payment or instead repaying any debts from your pension income;

When and how to take your pension benefits

  • you generally need to be at least 55 years of age before you are able to withdraw your pension funds;
  • but this is the minimum age and your pension provider may allow the funds to continue to grow in value and for the size of your pension pot to increase if you delay any withdrawal of finds – also giving you the advantage of enjoying those pension benefits over a shorter overall period of retirement;
  • under the new pension rules, there are many ways and forms in which you may choose to withdraw the funds, although it is important to remember that you have an income tax liability on all your pension earnings, including your State Pension.

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