Retirement is often associated with greater freedom and the opportunity to enjoy the rewards of decades of work. But for many people, the transition from earning a regular pay cheque to relying on pensions and savings can feel less like a gentle glide and more like standing at the edge of a financial cliff-edge.
A YouGov survey of 6,224 UK adults found that 55% reported that they were concerned about running out of money in retirement and, among these worried respondents, 63% were under 50 years old.
However, the good news is that avoiding a financial retirement cliff-edge isn’t about having extraordinary wealth – it’s about making informed decisions before and throughout retirement.
We spoke to Susan Hope, retirement expert and business development director at Scottish Widows, who shared the following nine practical steps to help you build a retirement plan that can weather life’s uncertainties and give you greater confidence that your retirement years will be defined by peace of mind rather than financial stress.
1. Understand what state pension and credits you are entitled to
“Make sure the cornerstone of your financial retirement income is covered by the state and you’ve got everything you’re entitled to,” advises Hope. “If you go onto the HMRC app you can find out really quickly when your state pension age is and what you are due to get.
“Another important thing to look at on the app is a year-by-year breakdown of your national insurance contributions.”
Hope recommends going back through your working years to make sure that you’ve got credits for every period because if you weren’t working due to unemployment, illness, or were caring for someone, you may be entitled to national insurance credits.
They help ensure you qualify for certain benefits, most notably the state pension, during periods when you weren’t working, were earning too little to pay National Insurance, or were claiming specific benefits.
2. Locate any lost or missing pension pots
“I have a huge bee in my bonnet about the £31 billion of untraced pensions that we have in the UK,” says Hope. “Go back through your LinkedIn or your CV and make sure that none of that £31 billion is languishing somewhere, because that is your money to have.”
Once you know the name of your previous employer or your old pension provider, you can use the government’s free Pension Tracing Service to help find lost pension pots.
3. Look at the UK’s different retirement living standards
“I think it’s really useful to look at the UK’s retirement living standards, because that will give you an idea of how much you’re going to need in retirement, depending on what type of retirement you want to live,” recommends Hope.
The three UK retirement living standards are minimum, moderate and comfortable.
“Ask yourself: What do I want my retirement to look like? I would compare the three standards to a Butlin’s, Barcelona or Barbados retirement,” says Hope.
4. Maximise employer matching
“You are not going to outperform a double-matched employer contribution on your workplace pension. So, the earlier you start taking advantage of free money from your employer and the investment growth, the better,” says Hope.
“Get in early because that snowball effect of compound investment growth, compound interest, and the magic of the employer contribution are unrivalled.”
5. Review all your options
“Take a really holistic look at your finances,” advises Hope. “There definitely is a lever to pull thinking about equity release, but retirement is really complex, and there are so many choices.
“Looking holistically at your house, investments and pensions and being able to pull the levers to be both tax-efficient and make the most of your assets is hugely important.”
6. Use benefit and retirement calculators
“Benefit calculators, such as the Turn2us benefit calculator, are really important,” says Hope. “There’s also a benefit calculator on Lloyd’s banking website that will help people understand if they’re entitled to specific benefits,” recommends Hope.
Scottish Widows also has a retirement calculator which in less than five minutes can help you understand the lifestyle you could have in retirement and will show you the estimated value of your retirement savings.
7. Use apps to get a financial overview
“I think that having an app for your finances is really important now,” says Hope. “I love having the single customer view, where you have your bank account alongside your retirement account and your pension.”
8. Make a before and after retirement budget
Planning early and sticking to a budget prevents overspending.
“Before you retire, I would definitely do a before and after retirement budget, because some expenses will go down and some won’t,” says Hope.
9. Be clear on your priorities
Everyone will have different priorities in retirement.
“Ask yourself what is more important, is it stability of income, flexibility of income, or legacy for my family? When you can answer that question for yourself, that will then dictate how you manage your budgeting and your spending,” says Hope.
“Some people will want to drain the pot down, and some people will want to leave as much as possible, and some people will just want to really enjoy the longest holiday of their life.”
Visit the Scottish Widows Retirement Calculator to see if your retirement plans are on track.
