Whether you’re a little way off retirement, or it’s just around the corner. It’s a significant milestone, and understanding your options can help you to make the best decisions for you.
Here are some options to think about, and what some of them could mean for you and your income in retirement.
Can you retire at 55?
At the moment, you can start accessing your pension from age 55. For most people this is rising to 57 in 2028. But some lucky pension savers, will still be able to access their pension from age 55. If you opened a Virgin Money pension before 2023 for example, you’ll be one of them!
Retiring at 55 is an exciting prospect, especially if you’ve spent most of your life working.
Retiring early can give you the opportunities to explore personal passions, like travelling, hobbies, or even spending more time with family.
But early retirement can also come with its challenges.
Financially, retiring early means you will need to fund a longer retirement. Your pension will need to last you until you die. Retiring early can increase the risk of running out of money.
You may also find that retiring early leads to lower pension benefits. This is because you may not have contributed to your pension plan for as long as those who retire later. There can be a significant difference in pension savings over a five, or even ten-year period.
The most important thing is to make sure you have the life you want and can look forward to. Whilst also balancing taking enough of your pension, and not taking too much too soon.
Take a deep dive into your pension savings and make sure you’re happy that you can afford the lifestyle you’d like to have in retirement.
You can use our retirement planner to see if you're on track.
What are the different types of pension plans?
Understanding the different types of pension plans is a good place to start. This will help you to understand what’s available to you.
- Workplace pensions are common in the UK, where both you and your employer contribute to your retirement savings.
- Personal pensions, including stakeholder pensions and self-invested personal pensions (SIPPs), are individual plans that you can set up yourself.
- Defined benefit pensions provide a guaranteed income in retirement, based on your salary and years of service, though they are becoming less common.
- The State Pension is available to those who are eligible. To qualify, you must have 10 years of National Insurance contributions on your record. But to get the full new State Pension, you need to have 35 qualifying years of contributions.
Making pension money last
Running out of pension savings is scary to think about, but it can happen. And for some people, not spending enough in their early years of accessing their pension can also happen.
When you begin to access your pension, you’re typically younger, in better health, and may want to take that trip of a lifetime.
As you age, you’ll want to make sure you have enough pension income that will last the rest of your life.
It’s a real balancing act.
So here are a few things to consider:
- Make sure you’re retiring at an age you’re comfortable with.
- Create a short, medium and long-term budget that can help you to better understand and manage your finances.
- Track your fixed expenditure and your variable outgoings over a three-to-six-month timeframe. This can give you a better idea of how you’re spending, and what you’d need to ensure you can still spend in that way.
- If you’re not sure you’ll have enough for later life, consider delaying your retirement, or look into different income sources. Such as considering part-time work, rental income, downsizing to release equity, or dividend payments from investments.
- Build up and maintain an emergency fund before you retire. This will help to give you a buffer in case any unexpected costs arise. This will help you to keep your retirement savings separate.
Delaying Retirement: Benefits and Strategies
Although it’s nice to think about the potential of enjoying retirement as early as possible, there are some benefits that can come from delaying retirement.
Working longer allows you to save more into your pension.
You can also delay your state pension, which can result in higher payments.
For every nine weeks you defer, your State Pension increases by 1%, This works out as just under 5.8% for every 52 weeks.
To maximize the benefits of delaying retirement, you could also consider over-paying into your pension, especially if you’re still employed. You could benefit from paying less tax, and having more money in your pension, too. A win-win.
Make sure, if you are thinking about delaying your pension, you take your health into consideration and ability to continue working, as delaying retirement may not be feasible for everyone.
Part-Time Work in Retirement
If you’re not quite ready to retire fully, but you want to wind down your working life, you may want to think about part-time work. You can still take money from your pension whilst you’re working, as long as you’ve reached pension age. This could help to supplement your income.
It can provide a bit of a financial buffer and help you to build up more of your emergency savings before you start to access your pension.
You can also still work and receive your State Pension. Once you reach State Pension age, you can choose to either work full or part-time. Keep in mind that the State Pension isn’t tax free as it counts as an income. So, the additional income might push you into a higher tax bracket.
Make sure you’re aware of your income tax band. And remember, that the first £12,570 of your income is tax-free in the 2024/25 tax year.
Understanding the UK State Pension
The State Pension is a regular payment from the government that you can claim when you reach State Pension age, which is currently 66 in the 2024/25 tax year and rising to 67 in 2028.
To be eligible for the State Pension, you need at least ten qualifying years on your National Insurance record. If you defer your State Pension, you could receive higher payments when you do start claiming it. This can be beneficial if you are still working or have other sources of income.
To receive the full new State Pension, you’ll need to have 35 qualifying years of National Insurance contributions.
Health, lifestyle and planning in later life
It’s really difficult to try and plan for the long-term, because nobody has a crystal ball. But you could consider factoring in any potential care costs when thinking about your options in later life. And how much pension income you might need in the future.
If you have children or dependents, make sure you’re sharing your wishes with them, so they can honour them in your later life.
If you’re not sure what’s right for you, you could think about accessing the government’s free Pension Wise Link opens in a new window service for guidance.
Your pension is designed for later life. When you save into a pension, the value of your investment could fall as well as rise and you could get back less money than you put in. You usually can’t access your pension until age 55 (rising to 57 from 6 April 2028). Tax rules can change and depend on your personal circumstances.
With a Virgin Money Pension you can take your pension savings as one lump sum, with 25% of it tax free. To access your pension another way you'll need to transfer your pension to another provider. We won't charge you to do that.
This article can give you helpful tips, but it isn’t financial, or tax advice. If you’re not sure if something is right for you, you should speak to an Independent Financial Advisor.