As the years roll by, our financial priorities change. By the time you reach your late fifties or early sixties, retirement may be fast approaching, but you will need to think about how to fund your lifestyle. Many will face a gap between stopping work and being able to claim the state pension which, from 2028, will not be available until you are 67.
With mortgages hopefully paid off, and children long out of university and into their own working lives, the key financial decisions at this stage in life will revolve around planning for retirement and working out how to pass wealth to the next generation.
As part of our Smarter with Money campaign, we are aiming to get more people investing and thinking about their finances. Here’s what you should be thinking about as retirement approaches.
Take stock and work out what you will need
Many people focus on providing the retirement they would like, but in your late fifties and early sixties it is also important to take stock of your current financial position.
Megan Rimmer from the investment firm Quilter Cheviot said: “A surprising number of people have not written a clear breakdown of their assets, savings, investments and other financial policies by this stage in life. But it’s difficult to know how long it will take to get to the destination if you don’t know the starting point.”
Then you need to work out what you will need once you stop work. Rimmer said: “Establishing your expected and desired expenditure in retirement is crucial to understanding whether you can enjoy the life you want, if you need to adjust your expectations, or even delay retirement.”
As we are all living longer, we need to ensure that our retirement savings last the distance. And you need to think about how, and when, you will spend money in retirement.
Maike Currie from the savings consolidation firm PensionBee said: “Retirement spending can often be higher in the early years when we’re healthy, active and spending on travel and experiences. It then dips as life and mobility slows. It can then rise again sharply as health needs increase and care costs bite.”
The pension firm Standard Life found that 80 per cent of over-50s were underestimating their life expectancy. The average 66-year-old man today can expect to live to 85, while the average woman will live to be 88, according to the Office for National Statistics.
Pete Cowell from Standard Life said: “Planning an income that lasts throughout retirement is one of the biggest challenges. Without a realistic understanding of how long this might be, it’s easy for plans to fall short.”
A couple need £60,600 a year of post-tax income to afford a “comfortable” standard of living in retirement, according to the industry body Pensions UK. This would allow £75 a week for groceries, eating out once a week, a fortnight’s four-star holiday every year and three short UK breaks. For a “moderate” standard of living a couple would need income of £43,900 after tax while the minimum standard would need £21,600 — less than two full state pensions, according to Pensions UK. All estimates assume that couples have no housing costs.
Helen Morrissey from the investment firm Hargreaves Lansdown said: “Online pension calculators can be a really useful way to get an idea of what you have — and what kind of income that pot is likely to give you. Be sure to factor the value of the state pension into your plans. It can make a huge difference to your retirement budget.”
A full state pension is worth £11,937 a year, rising to £12,548 next month. You can get a state pension forecast on gov.uk. Morrissey said: “If you’re not on track for the full state pension you may be able to fill national insurance gaps free of charge if you qualified for benefits. Or, you may be able to pay to fill in the gaps in your record.”
Max out your pension saving
This is the time to bolster your retirement fund, especially if it saves you from higher-rate tax. Emma Sterland from the wealth manager Evelyn Partners said: “With fiscal drag increasing the tax burden on income, and pushing many earners into higher tax brackets, pension tax relief is now perhaps more important than ever.”
Workplace pensions are a key part of retirement planning. Auto-enrolment was introduced in 2012, pushing employees to pay in at least 5 per cent of their salary, with employers adding 3 per cent. Some offer more generous schemes.
Bonuses can also provide an opportunity to boost retirement savings. Sterland said: “Consider whether you can sacrifice at least some of any bonus you get into your pension plan because this way you get to keep it tax-free.”
Most people can pay up to £60,000 a year, or 100 per cent of their earnings, whichever is lower, into a pension and get tax relief on those contributions.
Make use of salary sacrifice too. Alice Haine from the investment platform Bestinvest said: “The clock is ticking for workers who use their employer’s salary sacrifice scheme. From April 2029 there will be a £2,000 cap on the amount of salary you can sacrifice while making national insurance savings. Until then, those keen to boost their retirement savings may want to maximise contributions — particularly those on the cusp of a higher tax band.”
Plan your pension spending
Once your focus shifts from building a pension pot to turning it into income, you will need to decide how to make withdrawals. Morrissey said: “If you are in a final salary scheme, you will be paid out a set income for life. But if you are in a defined contribution scheme or you have a private pension you will need to make decisions as to how you want to take an income.”
One option is to use your pot to buy an annuity, a guaranteed income for life. You can choose between a level annuity, which pays out the same amount every year, or one that rises in line with inflation. The starting income from an inflation-linked product will usually be lower — and it can take years for it to catch up.
A 65-year-old with a £100,000 pension could use it to buy an income of up to £7,713 a year from a level annuity, according to Hargreaves Lansdown. If they were to use their pot to buy an annuity that went up 3 per cent a year, they start out on an income of £5,792, so it’s a big difference.
Morrissey said: “You need to weigh up your options carefully. If you have health conditions, disclose them because you may then qualify for an enhanced annuity, which will mean a higher income.”
Once bought an annuity cannot be unwound so getting the right one for you is key.
Another option is what is known as drawdown, where you keep your pension pot invested but take an income from it each year or month. Morrissey said: “Just ensure that the amount you take is sustainable for the long term because you don’t want to risk running out of money.”
In volatile times you may find you need to take out less, so you don’t risk eroding too much capital. Morrissey said: “It’s also a good idea to keep between one and three years of essential expenditure in an easy-access account that you can use to supplement your income if needed.”
You could also choose to combine an annuity with drawdown for extra flexibility.
Even though pensions may be the foundation of most people’s retirement plans, also make the most of wider savings allowances. In the 2025-26 tax year, you can put up to £20,000 into Isas, with any interest, dividends or gains sheltered from tax for life.
Plan for inheritance
Estate planning has become increasingly important in the wake of policy changes that will include pensions within a person’s estate for inheritance tax purposes from April 2027. Inheritance tax is charged at 40 per cent on assets above the tax-free allowances.
With this in mind, it may make sense to focus on passing some assets down to the next generation. Laura Suter from the investment platform AJ Bell said: “Failing to make use of annual gift allowances means that more of your estate could be dragged into inheritance tax later. Small, regular gifts made now can significantly reduce future bills.
Everyone can give away up to £3,000 a year without the gifts later being counted as part of your estate for inheritance tax purposes and small gifts of up to £250 per person on top. The £3,000 allowance can be carried forward if it wasn’t used in the previous year.
Any gifts make more than seven years before your death are also exempt. Just take care not to give more than you can afford; you don’t want to leave yourself short in retirement.
Extra allowances apply for wedding gifts, with parents able to give £5,000 to a child, grandparents able to give £2,500 to a grandchild, and anyone else allowed to give £1,000 tax-free.
Write a will
As retirement nears, it’s important to have a will to ensure that your assets are distributed according to your wishes. Both your will and your expression of wish forms, which set out who should get your pension benefits when you die, need to be kept up to date.
Lasting powers of attorney are another vital part of your planning, as they enable a trusted friend or family member to make decisions on your behalf if you lose the capacity. There are two types: one covers property and financial affairs while the other covers health and welfare.