The 5 key money questions you need to answer when you retire

Get your money in order and plan a stress-free life after work

Sarah Pennells – Virgin Money Living Mentor

by Sarah Pennells | Independent Money Mentor

Founder of SavvyWoman and award-winning journalist


Retiring used to be something akin to switching off a light – one day you were working, the next you weren’t. If you were lucky you got a watch to track all the extra time you had on your hands. But these days the winding down process can stretch over many months or even years. Whether you’re thinking of giving up work entirely or just reducing your hours, here are the key questions you should ask yourself.

Question 1: Do I want to give up work entirely?

Just because you’ve retired from your old job doesn’t mean you can never work again. Government figures about people in employment aged 65 and over show there are 1.2 million people aged 65 or over who currently work.

You might want to work because you miss the social side, or perhaps you find you’re spending more money than you planned, but either way you don’t need to step back in to the same field you’ve just left. Contact specialist recruitment agencies for the over 50s or investigate the Moneyaware website which has a list of free online courses. Now’s the time to live the dream after all.

Question 2: How do I want to take my pension?

This is the biggie! If you have a ‘pot’ type of pension, a pension you and also perhaps your employer have saved into to provide a pot of money to use at retirement, there are lots of options about how you take money out of it. The key message is that you should think carefully about taking a lump sum out of your pension if you don’t need it there and then. That’s because only 25 percent of your pension is tax free, and you’ll pay tax on the rest, potentially at an emergency rate if you take out a large lump sum.

Question 3: Do I need my state pension?

Firstly, if you want your state pension, you have to claim it as it’s not paid automatically. But if you don’t need it when you first retire, you don’t have to stake your claim immediately. And the later you leave it to start claiming, the larger the payments. You’ll get an extra 5.8 percent on top of your state pension for every year that you delay – or defer – claiming it (if you reached state pension age before the 6th of April 2016, you’ll get more). That’s on top of any increase in the state pension that everyone gets due to the ‘triple lock’. The triple lock is a commitment to increase the state pension by the highest of 2.5 percent, average earnings growth or inflation.

Delaying claiming your state pension can also help you save tax. If you’re a higher rate taxpayer at the moment, it may be worth waiting to claim your state pension until you become a basic rate taxpayer.

Question 4: Am I paying the right tax?

Contrary to popular belief, your state pension is taxable. It’s paid without the tax taken off and any tax owed is taken from other sources of income you have (such as a workplace pension). If you have more than one pension, you’ll get a tax code for each.

To avoid any nasty surprise tax bills, it’s worth adding up the allowances that each tax code gives you and checking it’s the same as the personal allowance you’re entitled to (the income you can receive in any one tax year without paying tax). There’s some useful information on tax in retirement on the Gov.uk website.

If you take a large lump sum out of your pension, or cash it all in, you may have to pay tax at the emergency rate. This is likely to mean you pay more tax than you should. You will get the tax refunded, but it can play havoc with cash flow! How much tax you pay will depend on how you take your money out of your pension, so it is important to research your options carefully.

It’s also worth knowing that you don’t pay National Insurance once you’ve reached state pension age.

Question 5: Is my money in the right place?

Now is the time for a complete savings and investments audit. You need to know where your money is and when you can get your hands on it. If you have a pension that you’re leaving invested, and/or you have other investments, such as stocks and shares ISAs or shares in individual companies etc. , it may be worth paying an independent financial adviser (IFA) for some one-to-one advice.

They can let you know if you’re taking too much risk, if you can save on charges by transferring your money elsewhere, or if you have too much with one company – which may mean you’re not protected if it were to go bust.

Face to face advice can cost from £125 to £300+ an hour, but can be cheaper if you get online or phone-based advice. You can find out how much advice might cost on the Unbiased website. Make sure the adviser is regulated by the Financial Conduct Authority by checking the FCA register.

Alternatively, you can get free guidance about your pensions from a government service called Pension Wise.

Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.