Retirement. It should be the beginning of a new chapter, an opportunity to spend your days enjoying the things you’re truly passionate about.
But to make the most of it, you need to plan. Whether you’re coming up to your planned retirement date or thinking about early retirement, now may be a good time to review your retirement plan and explore your retirement income options.
Your pension is the obvious place to start when it comes to options to fund your retirement, as it’s many people’s main source of income. You’ll most likely have a workplace pension which you’ve built up over time with contributions from both yourself and your employer. But don’t forget about other pensions you’ve had with previous employers, or any private pensions which you’ve set up yourself.
Currently you can access money from most modern, flexible pensions once you reach age 55 (due to increase to age 57 by 2028). You can generally take 25% tax free, although you don't have to take this all as one lump sum. Many people choose to take a regular income from the rest of their pension savings - known as flexible income or drawdown. If you choose this option, keep in mind that your money will stay invested, which means it can go down as well as up in value.
The State Pension age is 66 right now. It will rise again to 67 between 2026 and 2028 and is expected to rise further in the future. Your State Pension is a valuable benefit but bear in mind it will only provide an income of up to £175.20 a week (2020/21) based on your NI contributions. As part of your retirement planning, it’s worth thinking about getting a forecast of your individual entitlement.
You can use our helpful retirement income report see how your pensions, including your State Pension, fit into your overall life savings. It only takes five minutes to complete.
There’s also the option of supplementing your retirement income through other savings you might have, such as ISAs (Individual Savings Accounts).
If you already have any ISAs, it’s a good idea to regularly check how much they’re worth. This is particularly important if you have a Stocks & Shares ISA, which might have gained investment growth over time and could be worth more than you paid in. And that extra amount could make all the difference to your retirement income. Remember though that all investments can go down as well as up in value, and you could get back less than you paid in.
ISAs are also tax efficient - you don’t pay tax on the interest you receive from an ISA and any investment growth is free of capital gains tax.
ISAs offer flexibility too. Unlike pensions, you don’t have to wait until you’re 55 to take money out of them. That means if you stop working earlier than initially planned, ISAs may be able to provide the financial cushion you need until you can start taking money from your pension.
Another option you may want to consider for supplementing your retirement income is accessing the money you’ve invested into your home, tax free. This is known as equity release.
Many people choose to release equity from their home as part of their plans for retirement. The money released can help fund the lifestyle they want once they start working less, or stop working altogether.
Equity release isn't for everyone, and you need to pay off any existing mortgage before you use it. Any money released from your home through equity release, plus any interest that's built up, is repaid from your estate when you die or move into long-term care. It may also involve a Lifetime Mortgage, which is secured against your property or a Home Revision Plan.
How Standard Life can help you plan your retirement
As you can see, your retirement income can come from a variety of sources. But bringing them all together, and knowing when to use them, is the tricky part - and that's where we can help.
Our expert Retirement Advice team is here to help you make the most of the money you have available to support your retirement – and your future.
We realise that there’s a lot to consider when it comes to retirement – particularly in the current environment. And as retirement approaches, it’s reassuring to fully understand all of your options.
Our Retirement Advice team can help explain them all to you - simply book a free consultation with one of our advisers to get started. Alternatively, if you want to work out what you've got first, use our five-minute retirement income tool to show what retirement income you might get from all your life savings, including your State Pension.