It’s never too soon to start planning for your retirement.

Clearly, if you’re still some way off, your planning will probably include little more than making sure you’re contributing enough to your pension. But as you get closer to the time you want to stop working, having a robust plan in place is vital.

Such plans should centre around your retirement income. That is, how much you’ll have, how you should look to maximise it and the steps you should take to ensure you’ll have enough to live comfortably.

Here are eight tips for managing your income in retirement

1. Make sure you have a plan

As a starting point to putting your retirement income plan together, ask yourself some key questions. The answers to these will form the outline of your retirement plan.

When will I start needing to take income in retirement?

The days of stopping work one day and starting retirement the next are long gone. Many people now find the transition from work to retirement is flexible, with some preferring a “phased” approach. With a clear plan in place, you should have an idea of when you’ll need to start drawing money from your pension fund and other savings.

What do I want to do once I retire?

It’s likely you’ve thought about the sorts of things you’d like to do once you stop working. You may have a “bucket list” of places you want to visit, as well as other activities you haven’t had the time for while you’ve been working.  

How much income will I need?

Clearly what you want to do will have an impact on how much you’ll need. Overseas travel will be more expensive than staying at home. Similarly, some hobbies can cost more than cheaper options such as gardening.

How long will my money need to last?

Life expectancy is increasing. Current Office for National Statistics (ONS) stats show that the average male lives to 84 and female to 86. So, if you’re looking to retire at 66, bear in mind that your pension fund could need to last for at least 20 years and possibly much longer (nobody’s average!).

2. Know where your income is coming from

Along with most people, the bulk of your income in retirement will come from pension arrangements. These will either be company schemes run by your employer, or personal plans you’ve set up yourself.

Make sure you have an idea of how much they are currently worth, together with a projection of what they could be worth when you retire.

There is a pension tracing service to help you find any pension details you may have lost track of.

Additionally, you may well get income from other sources such as:

• Savings and investments, such as ISAs, General Investment Accounts and Investment Bonds
• Other investments such as stocks and shares
• Property – buy-to-let and raising money from your own property.

3. Don’t forget your State Pension

In the 2021/22 tax year, the new State Pension is currently £179.60 a week, which works out at £9,339.20 a year.

It’s not a huge amount – probably not enough to live comfortably on – but it provides a very useful, guaranteed income that will increase in value each year.

It’s worth checking the details of your State Pension. You can find out how much you’ll get, and when you’ll get it on the government website.

4. Don’t overlook the impact of inflation

Rather like lava lamps and flared jeans, I’m sure we all hoped that high inflation was one of those 1970s features that wouldn’t return. However, there have been recent warnings that inflation could be due for an unwelcome comeback, with all the implications for those in retirement. 

There are steps you can take to protect yourself against the impact of inflation in retirement. At the outset, the key thing to remember is that your income in retirement won’t be static. Your outgoings are likely to vary year by year, so remaining flexible will be crucial.

5. Minimise the amount of tax you pay

Taking steps to reduce your tax bill is always a good financial practice. It becomes increasingly important once you’ve retired and are no longer earning a regular income.

This doesn’t have to involve complicated tax planning. Just remembering a few simple facts can help you avoid having to pay too much tax when you don’t have to.

For example, both you and your spouse or partner have a Personal Allowance of £12,570 (2021/22), so you can take more than £25,000 annual income tax-free between you.

You are also entitled to take 25% of your pension fund tax-free. Often this is taken as a lump sum, although many providers enable you to take it as part of your regular income.

Also, you will not pay Income Tax on any money you take from your ISA savings.

6. Be aware of other commitments

When you’re planning your income in retirement, be aware of other commitments you may have that could impact on your finances.

For example, you may want to help your children or grandchildren financially at some stage – possibly with school or university fees, help with wedding costs or helping them get on the housing ladder.

Planning can help ensure that such support doesn’t provide too much of a burden or mean any big changes to your finances.

7. Ensure you have the right investment strategy

Given the importance of ensuring you don’t run out of money after you’ve retired, a robust investment strategy is crucial.

Different investments carry different levels of risk. Higher-risk investments have the potential for higher investment returns, but equally have a higher chance of sudden short-term losses.

Investing can be complicated, and mistakes can prove costly. If you aren’t sure about different investment strategies, we’d strongly recommend you get financial advice.

8. Have an emergency income fund

The nature of investment markets means that they can be susceptible to sudden fluctuation. It’s therefore best not to have all your financial eggs in one basket.

In particular, it’s often advisable to have enough money in a secure, low-risk fund to provide you with an  income in the event of a sudden downturn. This will help you ride out any market crash while your fund recovers.

Get in touch

I hope you’ve found the tips outlined here useful.

It’s never too soon to start planning your retirement, so if you’d like to talk through your own arrangements or think I can help you with the issues outlined here, please do get in touch.

Email me at graeme@macfp.co.uk or call 01349 832849.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.