How to plan for retirement in your 50s.

It’s never too early to start planning for your retirement. However, the decade or so before you reach retirement age can be extremely important to ensure you get the most out of your earnings. The retirement plans you make today may be critical to meeting your goals, no matter what stage you’re at in the process. We’ll share some of the key considerations below.

Refine your goals and monitor progress

It’s important to start this process by setting your goals as early as possible, specifying what you want to achieve and by when. Seeking advice from a regulated financial adviser can be particularly useful at this stage, as they can help you create a roadmap to meet the goals you have in mind. You can also get free, impartial guidance from MoneyHelper. You can contact them on 0800 138 7777.

There are many ways you might want to change your living situation in retirement, ranging from moving closer to family to relocating abroad.

It’s worth having a backup plan if you intent to boost your retirement income by downsizing because it’s not always that straightforward. The move might be more expensive than you think, with Stamp Duty, removals, redecorating and other hidden costs eating into the money you plan to save. You might even find you’re too attached to your home and decide not to move after all.

Consider when you want to finish working

While the State Pension age is 66 until May 2026, there’s no set age when you’re required to stop working. You must choose when you want to retire, considering factors like your financial situation, personal health and work satisfaction.

More and more people are choosing to semi-retire, cutting down their work hours so they can start to enjoy the increased freedom of retirement while keeping some of the structure and security of work. All employees have the right to request flexible working from their employer. But bear in mind that employers also have the right to refuse if they have a valid reason.

If you want to stop working early, you need to account for this properly in your retirement plan. Your savings will need to last longer, which means saving at a higher rate early on to build a larger Pension pot. There are also certain strategies you’ll need to consider more carefully when planning for early retirement, including maximising Workplace Pension benefits and choosing the optimal time to withdraw your funds.

If you want to stop working early, you need to account for this properly in your retirement plan.

Work out how much you need to retire

Most people want to live “comfortably” during retirement, but it can be difficult to put a number on what this means for your savings plan. To help you calculate how much you might need, the Pensions and Lifetime Savings Association (PLSA) has proposed three retirement living standards: minimum, moderate and comfortable.

A ‘minimum’ lifestyle would give you enough to cover your basic needs and some fun activities, while a ‘moderate’ lifestyle would let you have more flexibility to do more things you want to. In theory, a ‘comfortable’ lifestyle would mean having no worries about money.

These standards suggest the amount you’d need to be able to spend each year to enjoy a particular standard of living, so they can help you understand how much money you will need to save when budget planning for retirement.

They can also help you discern how much money you need to contribute to your Pension now, as saving early will help you enjoy more freedom in the future.

However, you should bear in mind that these estimated figures might not capture the nuance of your personal circumstances and retirement goals. A financial adviser can help you more accurately calculate how much you need to retire once you explain the sort of life you want in retirement and when you want to stop working.

Watch the video below for more clarity on how much you might need to retire:

Make regular Pension contributions

Once your goals are outlined, you can understand whether you’re on track to meet them with your current contributions or if you need to make changes to ensure you reach that target.

As your 50s and 60s are likely to be your highest-earning years, you may want to contribute regularly and even increase your contributions. It’s important to note that the earlier you can contribute, the better – however, it needs to work for you and within what you can afford to contribute.

Consider investing in an ISA

Investing money into a Stocks & Shares ISA account could help you make the most of tax benefits while still making regular Pension contributions. You can invest up to £20,000 per year into an ISA without paying tax on any money you make. Moreover, you don’t have to be a certain age to withdraw funds and there are no withdrawal fees, which can be helpful in emergencies. Some providers may charge a fee for cash withdrawals so it’s best to check before you decide to make a withdrawal.

Having savings in an ISA can also be useful if you choose to retire early because you’ll have access to tax-free funds while waiting for your Pension.

Investing through a digital platform allows you to check your investments against your goals whenever you need to, as well as easily and consistently invest in just a few clicks. You can also set reminders to invest regularly, removing the end-of-tax-year panic to make full use of your tax allowance.

Understand your Pension options early

When it comes to planning for retirement effectively, you must understand where your Pensions are and the different options you have to make the most of your money.

Consolidating your Pensions

You’ll likely have several Pensions with different providers from the various jobs you have had over the years. This can make it more difficult to gauge whether you’re on track to meet your retirement goals.

Bringing them together in one place means you’ll only have one company to deal with, a better idea of how close you are to achieving your goals, and more control over your money. You can use True Potential’s Pension finder service to find Pensions you’ve lost track of over the years.

But bear in mind that consolidating your Pensions might not always be the best course of action. Some Pensions might contain guarantees that would be lost on transfer or benefit from low costs that can’t be matched elsewhere.

Bringing them together in one place means you’ll only have one com[any to deal with, a better idea of how close you are to achieving your goals, and more control over your money.

Maximising the tax benefits of Pensions

There are many tax advantages when it comes to Pensions – tax relief on your personal contributions being one of them. To encourage more personal contributions, the government gives tax relief up to certain limits. For a basic rate taxpayer, if you contribute £80 your Pension provider will claim back £20, meaning a total contribution of £100 goes into your Pension pot.

Withdrawing your 25% tax-free lump sum

You’re eligible to start taking money out of your Pension from the age of 55 (due to increase to 57 in 2028). At this time, up to 25% of your fund can be taken out as a tax-free lump sum. But taking this much cash immediately is not necessarily the right course of action as it will reduce the Pension available to you.

Regardless of whether you start with a 25% tax-free lump sum, you’ll need to decide how you receive the bulk of your Pension over the years. Taking lump sums or drawing down your Pension will give you greater flexibility but carries the risk of running out of money. Alternatively, you can take an annuity, sacrificing some freedom in exchange for a secure, lifelong income.

It’s worth remembering that a Pension is designed to support your lifestyle for many years once you retire, and the right option will depend on your situation.

Having your mortgage paid off could reduce your expenses during retirement, so it could be worth making overpayments in your 50s with this aim. This could give you a better sense of security after you’ve stopped working and enable you to spend more of your Pension on the things you love.

Monitor your expenditure before you retire

Understanding how much you currently spend will help you tailor your retirement plans for the long term. It’s important to note that your spending habits are likely to change with retirement as you may be mortgage-free or other outgoings may not be needed as you’re not working anymore.

Get professional financial advice 

Planning for retirement can be challenging to navigate and there may be difficult decisions to make, which is why it’s best to discuss your options with a professional financial adviser. You can also get free, impartial guidance from MoneyHelper. You can contact them on 0800 138 7777.

At True Potential, we understand that your long-term goals are unique to you, which is why we are on hand to offer tailored advice personalised for your circumstances and aspirations. We can review your retirement plans to make sure they’re aligned with your goals. Whatever you need, we’re here to help.