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Retirement and pensions checklist: the definitive guide for seniors

Retirement can be exciting – you’ve put in decades of work and have now earned more free time. But what do you need to consider financially? This guide will cover everything, from pensions and budgeting to life insurance.

Retirement can be exciting – you’ve put in decades of work and have now earned more free time. But what do you need to consider financially? This guide will cover everything, from pensions and budgeting to life insurance.

An introduction to planning for your retirement 

There’s a lot to think about in the run-up to retirement. Broadly speaking, the main areas to consider are: 

  • Finances, and how to afford the lifestyle you’d like when you’ve retired
  • Staying active, through physical activity and hobbies
  • Social life, and how you’ll maintain relationships with friends and family 

This guide will focus on the financial aspects of retirement. This can often seem like the most complex area, but by breaking it down you’ll feel more in control.

Financial products 

Finances are a significant part of retirement. It may feel overwhelming initially, but with some careful planning you can make sure you’ve covered all bases as you begin this new chapter. 

Life insurance 

While life insurance isn’t something you benefit from during retirement, it can help ensure your family are protected and minimise the financial impact of your death.

Life insurance is designed to pay out a sum of money in the event of your death or – if critical illness cover has been added – you’re diagnosed with a serious illness specified in the policy. You pay monthly premiums, which vary in cost depending on how much you want the potential pay out to be.

What to consider when choosing life insurance

You will need to think about a number of factors, such as: 

  • Your age of retirement
  • Whether you have any outstanding debts, such as a mortgage, or smaller debts like credit card bills or a car loan
  • Whether your family needs your income to maintain their standard of living
  • Whether your family will be able to pay for your funeral expenses
  • Whether you want to leave a gift for your family after you’ve gone
  • The value of the estate that will be left for your family and whether it can provide for them after any Inheritance Tax (IHT) bill (if relevant) 

Thinking about these points and what your life insurance payout would be used for should help you work out how much cover you need, how long you want it to last, and how much you’re able to pay. 

What types of life insurance are available? 

  • Level-term insurance is designed to pay out a fixed lump sum if you die during the term of the policy. The amount of cover is fixed so it doesn’t change over the term. The amounts are set when you take out the policy.
  • Decreasing term insurance, like level term insurance, pays out if you die within a set period. However, the lump sum that would be paid is reduced each year. People generally have a policy like this to cover their outstanding mortgage, as the balance decreases.
  • Over 50s life insurance is a whole of life insurance policy for those aged 50 years and over. The premiums are fixed and you won’t need a medical or health check.

Is there an age limit? 

Some insurers will set a limit of around 75 to 80 years, and it’s rare to find a policy that will accept anyone over the age of 85 at the outset. 

The cost of life insurance after retirement

The cost of life insurance rises as you get older, as it’s more likely to make a pay-out on a policy. However, age is not the only factor which impacts cost – health, lifestyle, weight and smoking habits are all taken into consideration as well. 

Checklist:

  • Think about what a life insurance pay-out would be used for.
  • Compare the types of life insurance available, so you can decide which one best suits your needs.
  • Compare life insurance quotes.

Pensions 

A pension is money set aside to provide an income when you retire. Many people will receive a State Pension from the government, plus income from any pension pots they put money in during their working lives. 

State Pensions 

A State Pension is paid to you every four weeks by the government when you reach State Pension age. You can check your State Pension age using the government’s tool.  

There are two types of State Pension: 

  1. The Basic State Pension
  2. The New State Pension 

The Basic State Pension 

The Basic State Pension applies to women born before 6th April 1953 and men born before 6th April 1951. It consists of two parts, the Basic State Pension and the Additional State Pension. Both parts are based on your previous National Insurance contributions. 

People who have 30 years of National Insurance contributions receive the full Basic State Pension. People who have less than 30 years of National Insurance contributions get 1/30 of the full Basic State Pension for each year of contributions.

Visit gov.uk for more details on the Basic State Pension.

The Additional State Pension is made up of three schemes, which the government defines as follows:

Time

Scheme

You contributed if

2002-2016

State Second Pension

You were employed or claiming certain benefits

1978-2002

State Earnings-Related Pension Scheme

You were employed

12 October 2015 to 5 April 2017

State Pension top-up

You reached State Pension Age before 6 April 2016 and opted in

(source: gov.uk

The amount you get for your Additional State Pension (ASP) will depend on how much you earned.

The New State Pension

The New State Pension applies to women born on or after 6th April 1953 and men born on or after 6th April 1951. However, you could receive more or less than this, depending on your National Insurance record.

Visit gov.uk for more details on the New State Pension.

Years of National Insurance contributions

Amount of New State Pension received

35 or more

Full amount

10-34

A proportion

Less than 10

Not eligible for the New State Pension

 

No matter which type of State Pension you’re eligible for, you must claim it. It won’t be paid to you automatically.

State Pension deductions 

You might find that your state pension experiences a series of deductions before you get the chance to access it. In some cases, the rules which triggered this might date back decades, making it hard to understand why you’re missing out. 

Here are some examples of the types of deductions which you might experience when taking money out: 

  • Personal Pensions which ran between 1988-2002. People using this pension type will benefit from NI rebates, which were put into a private pot and then invested. This meant there was a risk as to whether the pension would be higher or lower than the State Pension, depending on factors such as investment performance. As a result, people on this scheme will see some of their State Pension deducted.  
  • Contracted out before 2016. This scheme was abolished in 2016. For those who contracted out prior to that date, there is the possibility to burn off the amount being deducted from your State Pension by contributing to the current plan.  
  • Company pensions. These are pensions which were run by your company, meaning that they may or may not have been contracted out (and as such became eligible for deductions). Make sure to check with your employer at the time to find out if you will have funds taken away.  
  • State pensions. Current State Pensions will include a contracted-out pension equivalent (COPE) figure, which tells you how much you can expect to lose from your total amount. This refers to the amount of money you may receive as bonuses from contracted-out schemes, rather than a deduction in and of itself.  

It’s used to calculate your pension total, which means the figure you see should be the full amount you receive.  

It’s smart to look ahead and work out what you may miss out on when you first take your pension. This will help you prepare for and adjust your budget accordingly.  

Pension pots 

A pension pot is the amount of money you and your employer have saved towards your retirement, plus any interest earned from the investment. You may have multiple pension pots, depending on your employment history. You can access a pension pot once you turn 55, or wait until you’ve retired. 

Sometimes it’s difficult to find old pension pots, but it’s worth trying so you can get everything you’re entitled to. The government has a service which allows you to search for the contact details you need in order to find a lost pension. 

It’s not always easy to decide what to do with a pension pot, because each one has different rules, fees, risks, and benefits. Options may include: 

  • Taking some or all of the pension pot as a cash lump sum. Be aware that you could be charged a significant amount for each withdrawal. Additionally, only 25% of your withdrawal is tax-free. There may also be a limit on the amount of times you can withdraw cash from your pension pot. Taking money from a pension pot could also affect your eligibility for means-tested benefits (i.e. benefits which you are eligible for based on your income and capital).
  • Buying an annuity (a type of pension product which allows you to swap your pension pot for a guaranteed regular income, either for life or a specific number of years). You can buy an annuity from any pension provider, but you can’t switch to another provider once it’s been purchased.
  • Income drawdown schemes (withdrawing a regular income from your pension fund which remains invested). You can choose the level of income from this investment, with no limit on how much you can take, although it will be taxable as part of your income. However, the level of income can’t be guaranteed in the long-term because you might use up the whole pension pot if the value of your investment decreases.
  • Leaving your money in the pension scheme. Some people may choose to do this initially, depending on their age and financial circumstances. 

Understanding the benefits of your type of pension pot  

Depending on the type of pension pot you have, the amount of money and the benefits you may receive will vary. Work out which of the following you have ahead of time to better understand what your pension offers you.   

  • GAR (guaranteed annual rate). This type of pension makes it more beneficial to purchase your level of annuity from your pension provider, as opposed to the open market. The fixed rate makes doing this far less of a risk than in other circumstances.  
  • DB (defined benefit). This type of pension exists to pay you based on what you earned and how long you spent with the employer, as opposed to the amount of money which you personally contributed to the pension scheme. This is also called a “final salary pension”.  
  • GMP (guaranteed minimum pension). If you were contracted out of the State Earnings Related Pension Scheme (SERP) between 1978 and 1997, this type of scheme will guarantee to provide a base level of benefit. This allows you to work out the very minimum which you might receive.  

Checklist

  • Identify whether your State Pension is the Basic State Pension or the New State Pension. 
  • Claim your State Pension (if you’ve reached State Pension Age) or check your State Pension forecast. 
  • Find your pension pots.  Request a pension forecast for defined benefit pensions and check your latest pension statement for personal pensions. 
  • Assess the things you can do with your pension pots, so you can make the right decision for your circumstances. 

Mortgages 

Some people may have paid off their mortgage by the time they retire. Others may be close to paying it off, trying to decide whether to pay it off early, or considering a move. 

Paying off a mortgage early 

Whether or not this is the right decision for you depends on your financial circumstances. Sometimes other debts might be a priority. 

Why you might pay off your mortgage early

Why you might not pay off your mortgage early

A significant monthly expense no longer has to be paid, which means you can spend less each month. This can be a relief if your retirement income is lower than you’re used to.

You have other debts with higher interest rates than your mortgage, such as credit card bills or unsecured loans that you would rather pay off.

You want to use the money you would have spent on mortgage repayments for other purposes.

You’ll be charged for overpaying your mortgage while you’re on a special rate.

 

If you do decide to pay off your mortgage early, you need to look at when the interest is charged, as this will affect when you make the overpayments. If the interest is charged daily, it’s best to make the overpayment as soon as possible. If the interest is charged annually, think about making the overpayment when it counts towards the calculation of the interest for the year. Note that most lenders now charge interest daily.

Retirement interest-only mortgages 

If you’ve retired but still have a mortgage, a retirement interest-only mortgage could be a good option. You only pay the interest on the debt, which makes it more affordable. The debt doesn’t have to be paid until the last homeowner passes away or moves into long-term care. You can repay it sooner if the mortgage deal has expired. In some cases, you can overpay without incurring penalties. 

Designed specifically for over-55s, lenders normally let you borrow 50-70% of the value of the home if you take out this type of mortgage. These can be fixed or variable rates, depending on the lender. 

Equity release loans 

An equity release loan gives you a fixed interest rate for life, if you are over 55. This is calculated based on your age and how much equity you have in your home. You can use this type of loan to pay any outstanding mortgage debt or pay for changes to your home (such as adding accessibility measures).

An equity release loan doesn’t have to be paid until the last homeowner dies, or moves into long-term care. There are no repayments, but interest is added to the loan total, albeit at fairly low rates.

Downsizing 

Some people reach retirement and decide they no longer need or want to deal with the upkeep of a larger property. In this instance, moving to a smaller home, i.e. downsizing, is a practical option, and it can be a financially savvy one too. Smaller properties cost less to run and are less effort to maintain. 

If you own your home, you can use the money from the sale to supplement your pension, pay off your mortgage or other debts, or put it towards enjoying your retirement. 

Checklist

  • Review the mortgage options available to you and assess your current situation, so you can make an informed choice if you do decide to move.

Debt 

You may reach retirement and still have some debt to pay. It can be tempting to try to put it out of mind, but you’ll be better off financially and emotionally if you address it head on. 

Step 1: Know your total amount of debt

The total amount of debt you owe could include things like:

  • Car loans
  • Credit cards
  • Home equity loans
  • Mortgage payments
  • Personal loans

Step 2: Identify the debts with the highest interest rate

Look for the annual percentage rate (APR) and arrange to pay off the debt with the highest APR first. Doing this will reduce how much you spend on interest, giving you more money to pay off other debts. 

Step 3: Make a payment plan

There are several ways you can pay off debts. 

  • The avalanche method. Make minimum monthly payments on all your debts but pay more towards the debt with the highest interest rate. Once that debt has been paid off, you pay the extra amount towards the debt with the next-highest interest rate and so on.
  • The snowball method. Make minimum monthly payments on all your debts but pay more towards the debt with the lowest amount left. Once that debt has been paid off, you pay the extra amount towards the debt with the next-lowest amount left, and so on.
  • Consolidating debts into one personal loan. You would borrow a lump sum (i.e. the total amount of your debt) and make fixed payments every month until the debt has been paid off. Your credit score will affect the personal loans you’ll be approved for. Your credit score may also drop slightly when you apply for a personal loan, so make your applications within a timespan of two weeks to minimise this. 

Speak to a debt advisor if you’re not sure which method is best for you. We’ve included links to some free services below. 

Step 4: Include your debts in your monthly budget

Make paying your debts part of your monthly outgoings. You can find advice for creating a budget plan later in this guide. 

Step 5: Seek support

Dealing with debt can be stressful – it’s okay to seek help. There are several registered charities and services who can advise you for free, including: 

A debt advisor can help you with budgeting and advise you on how best to pay back your debts. Things they need to know include: 

  • Your monthly income
  • Your monthly expenses
  • Your bank statements
  • Whether you own your home or rent it
  • Your debts and how old they are
  • Your creditors, including any correspondence with them
  • If any of your debts belonged to a partner who has passed away
  • If any of your debts are from a loan or agreement you signed but didn’t understand 

It’s important to be completely honest with your debt advisor about your circumstances so they can figure out the best way to help you. 

Checklist: 

  • Know your total amount of debt
  • Identify the debts with the highest interest rate
  • Make a payment plan
  • Include your debts in your monthly budget
  • Seek support

Budgeting

Budgeting is important at all stages of your life, but especially when you experience a change in income like you will with retirement. A budget allows you to take control of your finances, work out if you have enough money to do what you would like to, and prioritise your spending.

Here’s how to create a realistic budget. 

Step 1: Assess your outgoings 

Go over recent bank statements to identify regular expenses. Common expenses include: 

  • Rent or mortgage payments
  • Debt payments
  • Household bills
  • Living expenses, such as groceries and other household items
  • Health costs. Note that prescriptions are free if you’re aged 60 or over.
  • Insurance costs, such as life insurance payments
  • Car or train travel. You can get a Senior Railcard once you reach the age of 60. Bus travel is free once you reach the State Pension Age in England, and free in London, Northern Ireland, Scotland and Wales from the age of 60.
  • Leisure activities (hobbies, entertainment, holidays)
  • Other personal expenses

Adding up the monthly costs of these expenses will give you an idea of how much money you’ll need during your retirement.

Step 2: Work out what your income will be during retirement

Your retirement income will normally consist of your State Pension, pension pots from various jobs, and any other savings or investments you’d like to put towards it.

Step 3: Reassess your outgoings and create a budget

Is your retirement income enough to cover your monthly outgoings? If not, is there anywhere you could cut back? For example, you might decide you only need one car now cheaper (and, in some cases, free) public transport is available to you, or you might switch gas and electricity providers so you’re on a cheaper tariff. 

You may also have paid off some debts by the time you retire, such as a mortgage or car loan. 

There are many ways to track your budget. 

  • Using a spreadsheet (the template gallery in Google Sheets offers monthly and yearly budget templates)
  • Categorising your expenses (some credit cards do this automatically)
  • Budgeting apps, such as Emma and Money Dashboard (which are free), or Moneyhub (requires a subscription) 

Step 4: Consider increasing your income 

You may have finished working full-time, but there are ways to boost your income that don’t involve coming out of retirement. 

It’s worth checking which benefits you are entitled to, if any, as you may be eligible to receive attendance allowance, housing benefit, or pension credit

Increase your income during retirement  

You may feel like the amount of money you’re receiving isn’t enough to sustain your lifestyle during retirement. If that’s the case, there are ways to naturally boost your income without having to return to work. Let’s take a look at some options:  

  • Clear all debts. While this will probably mean you need to splash a bit of cash up front, clearing debts makes the amount you take home every week from your pension stretch that little bit further. This is something you can focus on in the years prior to receiving your pension. 
  • Find any lost funds. Forgotten bank accounts, premium bonds, and pension pots you may have contributed to 30+ years ago are all sources of money which you may not instantly think about. Sit down and try to remember if there are any extra funds lying around – and make use of pension tracing services provided by the UK Government.  
  • Check your benefits eligibility. Charities like Age UK will gladly provide benefits checks to make sure you aren’t missing out on funds which you have a right to claim. These include things such as Pension Credit, Housing Benefits, and Attendance Allowance.  
  • Reduce household bills. It might be time to start thinking smartly about how you use your energy at home. Try to be more conservative with water and electricity usage, and also look into whether your age has helped you become eligible for a Council Tax reduction.  

Attendance allowance 

Attendance allowance is a weekly payment of £60 or £89.60 which helps with personal support if you’ve reached State Pension Age and have a physical or mental disability. You don’t need to have a carer in order to claim this benefit. 

Housing benefit 

Housing benefit can help you pay rent if you’re on a low income. It’s being replaced by Universal Credit, but you can make a new claim if you’ve reached State Pension Age and are single, or if you live with your partner and any of these points apply: 

  • You’ve both reached State Pension Age
  • One of you has reached State Pension Age and started claiming Pension Credit for you as a couple before 15 May 2019
  • You’re in a supported, sheltered, or temporary housing 

Pension credit 

Pension credit tops up your weekly income. It is separate from a State Pension. You may be eligible if you’re over State Pension Age and on a low income. 

Your weekly income could be topped up to £177.10 if you’re single, or £270.30 if you have a partner. 

Checklist:
● Assess your outgoings
● Work out what your income will be during retirement
● Reassess your outgoings and create a budget
● Consider increasing your income

The different stages of planning for retirement

What you’ll need to be thinking about the year before you retire will be very different to 10 years prior. Here’s something handy to keep in mind as you creep closer and closer to the moment you hang up your boots for good.  

  • 10 years prior. With such a lengthy amount of time to plan, this is the best place to start thinking about what your goals might be for retirement. Think about what kind of lifestyle and the types of hobbies you want to continue to pursue (or learn), then work out if your current pension will match your needs.

    Things to keep in mind:
    • The exact age you want to retire 
    • What financial support you need to provide for the rest of your family 
    • How much the cost of living expenses might change 
    • What income you’ll have once you’ve retired 
    • What your current debt situation is like  
  • 3-5 years prior. If you started looking at your goals 10 years before retirement, this is a perfect time to reassess them. Have things changed, or not gone as you might have expected? If you didn’t start planning in the previous bracket, it’s never too late. This is a good opportunity to look ahead – although there will be less time to fix things if they don’t go to plan. Talking to a financial advisor could be helpful at this stage.

    Things to keep in mind: 
    • Are your national insurance (NI) contributions up to date?
    • Think about writing a will 
    • Find out what happens to your pension if you delay your retirement  
  • 6 months prior. It’s time to get all your ducks in a row. Check exactly where you are with all your finances and start to work out what kind of activities you’re going to be able to do with the money which is available to you.

    Things to keep in mind:
    • Check your state pension funds to see how much yours is worth
    • Look for any pension pots you may have forgotten about
    • Find out how your pension is going to be paid to you 
    • Speak to your employer about retirement

The full checklist 

  • Life insurance
    ○ Think about what a life insurance pay-out would be used for. 
    ○ Compare the types of life insurance available, so you can decide which one best suits your needs.
    ○ Compare life insurance quotes.
  • Pensions
    ○ Identify whether your State Pension is the Basic State Pension or the New State Pension.
    ○ Claim your State Pension (if you’ve reached State Pension Age).
    ○ Find your pension pots.
    ○ Assess the things you can do with your pension pots, so you can make the right decision for your circumstances.
  • Mortgages
    ○ Review the mortgage options available to you and assess your current situation, so you can make an informed choice if you do decide to move.
  • Debts
    ○ Know your total amount of debt
    ○ Identify the debts with the highest interest rate
    ○ Make a payment plan
    ○ Include your debts in your monthly budget
    ○ Seek support
  • Budgeting
    ○ Assess your outgoings
    ○ Work out what your income will be during retirement
    ○ Reassess your outgoings and create a budget
    ○ Consider increasing your income