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Retiring soon

Step 2 – Take action

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Once you know where your income is coming from, you can work out your spending and see what you have left. Use the Budget calculator to help you.

Whether you will have enough money coming in, need to think about reducing your outgoings, or want to top up your income, the tips below will help you make more of your money.

Retirement

  • When you reach the pension age set in your occupational, personal or stakeholder pension, you can usually do any of the following:
    • continue working and contributing to the pension, (if scheme rules allow);
    • take a tax-free lump sum, usually up to a quarter of your fund (depending on scheme rules) and draw your pension;
    • take a pension and carry on working for that employer (if scheme rules allow).
  • Unless you're getting your pension from a salary-related occupational pension scheme, you'll need to make decisions about how to receive your pension income, for example by buying a lifetime annuity – see Retirement options.

Reduce your borrowing

  • Consider reducing your borrowing costs, for example any outstanding credit cards or loans. Watch out for early repayment charges which some providers may charge if you pay a loan or mortgage off early. Depending on the cost of the loan and the savings rate available, it may be better to repay debt than to save, unless of course, you think you may need that money later.
  • If you can't repay a loan, think about shopping around for a cheaper deal. For more information see our Borrowing money guide, available to download or order online at Publications.

Maximise your savings

  • Do you have an emergency savings fund? If not, think about starting one.
  • Some savings accounts are either taxed more favourably, or tax free – see Savings – and you can compare different savings accounts on Compare products.

Topping up your income

Depending on your circumstances, and if you can afford it, you may still have time to top up your pension fund by increasing your contributions – speak to your scheme administrator or your pension provider.

  • Be aware that if you are currently eligible for certain State benefits such as Pension Credit (see below), topping up your pension may reduce your entitlement.
  • Nearly half of all pensioners are entitled to Pension Credit. It tops up your income to a guaranteed minimum level if you're over 60. You could also get extra credit if you're over 65. See Get more help.
  • If you decide to top up your income with investments, think about how much income you'll need, and bear in mind that some income-producing investments carry risks that may affect the money you invest.
  • Even if you feel you'll have enough money in retirement, make sure you claim anything you're entitled to. Over £2 billion of state benefits go unclaimed by people over 60 every year – you may be entitled to help with healthcare, travel and grants for improvements to your home and more – see Get more help.
  • If you're a homeowner, you may think about boosting your income or getting extra cash by using an equity release or similar scheme. Consider taking professional advice from a suitable adviser before committing yourself – for more information see Equity release.

Tax

Income tax

All income from pensions and annuities bought with your pension fund is normally taxable. You may pay less tax once you retire – most people aged 65 and over are eligible for a higher personal allowance. Check that:

  • you are getting the correct allowance;
  • you have the right tax code; and
  • you're not paying more than you have to.

For more information get a copy of HMRC's guide Approaching retirement – a guide to tax and National Insurance contributions (IR121) – see Get more help.

Inheritance tax

Inheritance tax is the tax paid on your 'estate'. This is everything you own at death, minus what you owe. As the value in people's homes has increased, more people have become liable to pay inheritance tax.

  • Whether or not your beneficiaries pay inheritance depends on the value of your estate.
  • To check current allowances the HMRC website has information that may help you or go to the Directgov website – see Get more help.
  • For specialist help with tax matters speak to your accountant if you have one, or contact your Tax Office. To find the one nearest to you contact HMRC – see Get more help.

Family and dependants

  • It is important to think about how your dependants would manage financially if you died – check whether your life insurance or pension will provide for them.
  • Make a will if you haven't done so already – you can search for a solicitor specialising in wills on the Law Society's websites – see Get more help.

What next?

Explore more guides

Try Age Concern's MoneyTrail CD-ROM to find out whether your current pension and savings arrangements are on track to provide you with the retirement income you want – see Get more help.

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