A pension is a long-term investment. Its value can go down as well as up and could be worth less than was paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK also have an impact on tax treatment.
It’s never too early to start planning for life after work – but the sooner you begin, the better. And as you approach retirement, you need to think about how you’ll manage your money. From figuring out whether you’ve saved enough to brushing up on tax rules, here are some things you can do to help.
How do I manage my income in retirement?
You’re likely to have more than one source of income in retirement. For example, these could include:
- The State Pension, which most people can claim once they reach State Pension age (currently 66 and rising to 67 by 2028)
- Personal and/or workplace pension plans
- Other investments and savings
A helpful first step is to think about where your own income might come from and how much money you’re likely to have.
Remember, you can choose to stop working before you reach State Pension age.
How could I manage my living expenses in retirement?
Think about what you’ll spend your money on when you retire.
You’re likely to spend less in retirement. You’ve possibly paid off things like a mortgage or car by that time, for example.
But you’ll still have everyday essentials to cover, like utility bills and food shopping. Some of your other costs could rise. You might have a list of places you want to see and things you want to do to in retirement.
Once you know how much you might need, you can compare this amount to the potential value of your pension plans and other income sources. This can help you see if you’re on track for the lifestyle you want.
Do I pay taxes in retirement?
Yes, you’ll normally still pay relevant taxes in retirement.
Doing some research can help you avoid getting an unexpected tax bill. For example, the personal allowance refers to how much income you can receive in each tax year before you start paying tax on it. It applies to your income in retirement, too. To find out more about this and other allowances, visit our tax in retirement guide.
Keep in mind that you can usually take 25% of your personal and workplace pension plans tax-free. But the other 75% will be taxed in the same way as income.
How can I take my money in retirement?
A big part of managing your money can be deciding how you’ll take your pension savings – and we’re here to help you understand your options. For example, you could:
- Take a flexible income (drawdown) – You can take a flexible income, which means you can set up a regular income, decide how much money to take and choose when to take it. You can start, stop, or change the payments you get at any time
- Take lump sums – You can take one or more lump sums from your pension pot. You can decide how much you take and when you take it. You can find out more in our guide to taking cash from your pension
- Buy a guaranteed income for life (annuity) – You can use some or all of your pension savings to buy an annuity. Annuities can give you a guaranteed regular income for the rest of your life. You can choose an annuity that provides for others – like a partner or children – when you die
You could even combine these options to suit your needs. If your provider doesn’t offer the option you want, you may need to transfer your plan to another pension provider. Transferring won’t be right for everyone, though, so it’s worth seeking financial advice if you’re unsure.
How long will my money need to last in retirement?
It’s important to make sure your pension pot doesn’t run out if you’re relying on this as a source of income.
Life expectancy in the UK is predicted to increase. Current statistics show many people in the UK are living well into their 80s. This means people who retire at 60 could need to make their retirement income last for more than two decades.
It’s worth noting there’s no limit to the number of years you can claim the State Pension. Just keep in mind you won't be able to claim this until you reach State Pension age.
You’ll also need to think about whether this could cover your basic costs. The full new State Pension amount for the 2023/24 tax year is around £10,600 a year or roughly £883 a month, although you might not get this much. Remember, the amount you’ll get depends on your National Insurance record and how many qualifying years you have. For more information, read our State Pension guide.
Overall, saving money and planning for the future can help give you some reassurance that your money could last as long as you need it to.