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Preparing for retirement: the definitive checklist

Updated 05 March 2021

5min read

Nick Green
Financial Journalist

Get ready for retirement

If you’re preparing for retirement, there are a number of financial and emotional factors to consider. Careful retirement planning will allow you to enjoy a long, happy post-work life and stop you falling prey to a callous scam that promises to boost your retirement income. We’ve put together a list of the top 10 tips for planning for a happy retirement.

  1.  Set up a pension

No matter how young you are, your first priority when planning retirement should be to set up a pension that has plenty of time to grow into a healthy source of income. If you’re an employee, you should have been auto-enrolled into your workplace pension if you’re 22 or over, under State Pension age and earning more than £10,000 per year with your employer. If you’re self-employed, you’ll need to make your own pension arrangements.

If you’re serious about maximising your retirement, you could also set up an additional private pension pot or start making careful, long-term investments that will give your money the best chance of growing. 

  1.  Decide when you’d like to retire

Not everyone has the luxury of choosing their retirement age, as health concerns or personal circumstances can take the decision out of our hands. However, if you’re still a while from retirement, it’s sensible to consider when you’d like to retire, particularly if you’re set on doing so as soon as possible.

Helpful pension calculators can enable you to work out how much you need to save per month to get to your retirement goal. All you’ll need to do is enter a few details, like how much your current pension pot is worth (or how much you’re saving per month), when you’re hoping to retire and how much annual income you’d like to have during your retirement years. You’ll be able to see whether you’re on track to achieve your goal or if you need to step up your saving efforts.

  1.  Work out your predicted pension income

The average annual income for a pension-age person in the UK is just £15,080 per year (after taxes and housing costs) – far lower than the average salary of £30,800 for working-age people. However, your actual income could be more generous or leave you on a tighter budget, so it’s sensible to do your calculations.

If you’re within a few years of State Pension age, you can get an estimate of how much state income you’re likely to receive by getting a State Pension statement. Add in any private pensions and savings, divide them up by the number of years they’ll need to last and you’ll get a good idea of what your retirement income is likely to be.

It’s worth noting that, although the gap between State Pension age and the UK’s average life expectancy is roughly 15 years, your pension pot may need to last in excess of 25 years if you retire early or live a very long life. Always be conservative when working out how far your savings and pensions can stretch.

  1.  Aim to reduce debts

Before taking a potentially significant cut in income, it’s wise to clear as many of your outstanding debts as possible. The UK’s average retiree now has around £17,460 of debt still to pay off and around 14% of over-55s are still paying off their mortgage. To give you the best chance of enjoying your retirement without money worries, it’s sensible to dedicate your pre-retirement years to paying off as much debt as you can. You could also withdraw a lump sum of your pension early to clear outstanding balances (though this isn’t advisable without speaking to a financial adviser first).

If you’re in lots of debt in later life, you don’t have to struggle in silence. Charities such as Stepchange are dedicated to helping people consolidate and work towards paying off unmanageable debts. Reach out sooner rather than later to give yourself the best chance of reducing or clearing the amount of money you owe so you can focus on enjoying your retirement.

  1.  Seek independent financial advice

You might be asking yourself ‘Do I need a financial adviser?’, and we’d say the answer is generally yes. While it’s possible to make a savvy retirement plan on your own, an IFA (independent financial adviser) will show you little-known ways to get more out of your money and make your retirement even better.

For example, if you’re currently saving at a rate that will take you over the tax-free pension lifetime allowance (which currently stands at £1,073,100 for the 20/21 tax year), an IFA will help you explore tax-efficient alternatives so you can enjoy more of your money in retirement.

  1.  Make a new budget

To make sure you’re prepared for the next chapter of your life, you might like to draw up a budget to help you adjust. It’s very likely your retirement income will be lower than what you’re used to, so you may need to keep a closer eye on your finances.

Budget your money in order of importance, making sure obligations like housing, utility bills and costs are accounted for before working out your weekly coffee and cake allowance. And if you’re not already using one, downloading a mobile banking app will make it much easier to keep a close eye on what’s going in and out.

  1.  Prepare for retirement emotionally

Although enjoying lots more free time and getting to leave the world of work behind sounds like heaven for many, it can be tricky to adjust to. The lack of routine, newfound isolation and feeling as though you’ve lost your sense of purpose can make some retirees feel low.

In addition to your financial preparations, make sure you spend time thinking about how you’re going to keep yourself mentally well in retirement. Try and give your days a sense of structure with an enjoyable routine and make the effort to continue socialising with work friends you’ve left behind. Here are just some of the ways to stay well:

  • Join local groups where you can enjoy hobbies with like-minded people
  • Set out a daily/weekly routine to keep a sense of purpose in your days
  • Do regular exercise
  • Plan plenty of activities to look forward to
  • Keep in contact with friends and family regularly, even if it’s just by text
  1.  Plan how you’re going to stop working

Retirement doesn’t have to mean you cut your working hours from full time to zero immediately. You could semi-retire for a few years by reducing your working hours or finding another part time job that takes you away from the stressful corporate world. This strategy could make it easier to adjust, both mentally and financially, to full retirement.

If you know giving up work altogether isn’t going to suit you, you could use retirement to pursue goals you’ve never had time for. After all, you’re never too old to start a new business venture or volunteer for good causes in your area.

  1.  Continue investing in line with your goals

While you can still invest well into retirement, it’s sensible to reassess your portfolio in line with your new requirements. Your investments may be your main source of income, so it’s likely you’ll want to switch to options that are most likely to offer steady, measured returns rather than high-risk products. There’s no set way to do this, so it’s always best to get some advice before making any changes.

  1.  Sort out your estate planning

While not directly related to retirement, it’s sensible to make sure you’ve got your affairs in order by the time you reach retirement age. Careful inheritance planning can maximise how much of your assets your family or friends can enjoy after you’re gone and reduce excessive tax bills. It will also make the process much easier for your loved ones and avoid an expensive, stressful and lengthy probate period if you pass away without a will.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.