Retiring soon? 6 steps you need to take now

For years, your financial focus has likely been on one thing: saving for retirement. Now the time has come to think about how you’ll enjoy the fruits of your labour by turning those savings into a secure, long-term income.

This new phase requires a different mindset and a clear plan to ensure your money works for you throughout your retirement. To help you approach this exciting new chapter, we’ve created an essential checklist to work through.

Whether you’ve six months or two years until your retirement date, use this list to help you plan.

What’s on this page?

1. Get a state pension forecast
2. Check what your pensions are worth
3. Work out how much you’ll need
4. Decide whether to take your tax-free cash
5. Plan where your income will come from
6. Get expert advice

1. Get a state pension forecast

As you approach retirement it’s vital to know how much money you’re going to get from your state pension. Many people don’t realise that you’re not guaranteed to get the full amount automatically (£230.25 a week in 2025/26).

How much you get will depend on how many years of national insurance contributions (NICs) you’ve made. You will need 35 years of NICs to get the full state pension, either paid through earnings or from credits you may have been entitled to for claiming certain benefits, like child benefit.

If you have fewer than 35 years of contributions but more than 10, you’ll get a proportional payment. If you have fewer than 10, you will not get any state pension.

You can get a state pension forecast on the government website. It will show you how much you’re on track to receive, if there are any gaps in your NIC record and what age you’ll get your pension.

If you’ve got gaps in your record from the last six years, you may be able to plug them by purchasing voluntary NICs. Helen Morrissey, head of retirement at Hargreaves Lansdown, says: “The state pension is the very foundation of your retirement income, so make sure you are making the most of it.”

If you aren’t planning to completely retire when you hit state pension age you could consider deferring your state pension. This means you delay receiving it, but you’ll receive a larger amount when you do start taking it.

2. Check what your pensions are worth

Now is the time to take stock of all your retirement savings. Start by checking if you have any forgotten pensions using the government’s Pension Tracing Service. There’s an estimated £31.1bn sitting in forgotten pensions, according to a study from the Pensions Policy Institute, so make sure none of it’s yours. 

Then check the value of all your private pensions. Your annual statements will show you what your defined contribution pension pot is worth or give you a projected income for a defined benefit pension. This gives you a clear picture of how much you have to use for your retirement income.

If you’ve misplaced your statements, you may be able to view them online, or ask your pension provider.

Justin Modray, founder of Candid Money, suggests: “Whilst looking at your pensions, also check how they’re invested and how much they cost. If you plan to buy an annuity, then ensuring the pensions are invested cautiously, or even held in cash, in the run up to retirement is prudent as you don’t want a stock market crash derailing your retirement plans.”

3. Work out how much you’ll need

Now you know how much you have, it’s time to work out how much you’ll need in retirement.

The Pensions and Lifetime Savings Association (PLSA) suggests a single person needs around £13,608 a year (before tax) for a minimum retirement standard, while a couple needs £21,600. For a comfortable lifestyle, that rises to £55,220 for individuals and £69,466 for couples.

You can use an online pension calculator, such as the calculator from the government’s MoneyHelper service, to find out how much income your pension pot will give you. 

Modray adds: “Hopefully, it’ll confirm that you’re in a good place financially, or else you may need to either trim your expectations, consider working longer, or perhaps downsize your home.

“This is also a good opportunity to run through all your outgoings, shop around for better deals on things like utilities and insurance, and check you don’t have any direct debits for services you no longer need or use.”

4. Decide whether to take your tax-free cash

Once you hit 55 (rising to 57 in April 2028), you can take 25% of your pension savings as a tax-free lump sum. This can be a handy chunk of money to clear any outstanding debts, or perhaps pay off your mortgage before you retire in order to reduce the income you’ll need in retirement. But you don’t have to take it straight away.

Rebecca O’Connor, director of public affairs at PensionBee, says: “Trying to resist the temptation to see your tax-free cash as ‘free money’ to kickstart your retirement can pay dividends later on. There is no obligation to access some or any of it at the point of retiring, so don’t feel you need to do so.”

You can also leave it invested to continue growing (and, hopefully, increase the value of your tax-free cash), or take it gradually to give you a tax-free income in your early retirement years.

5. Plan where your income will come from

These days everyone’s retirement looks different, and it doesn’t always mean stopping work completely. It could be you want to work part-time, or maybe you have a hobby you want to turn into a sideline now you have more time.

Even if you don’t work, there are still options (if you have a defined contribution pension) for how to turn your pension into an income – including buying an annuity, taking cash from your pot or using income drawdown.

There may also be tax benefits to using non-pension savings such as ISAs in your early retirement before using your pension (because there’s no tax to pay on ISA withdrawals), or taking your income from several sources.

O’Connor recommends you get to know the terms and conditions of your pension. “Familiarise yourself with the type and terms of your pensions you have as some can come with guarantees and/or restrictions, while others can be accessed more flexibly.

“You may also want to consider consolidating some at this point, if you have a few old workplace pensions and you think this would help you stay on top of your pension income and access.”

• Read more about how to cut your tax bill in retirement.

6. Get expert advice

When you’re on the brink of retirement, getting expert financial advice should help you make the most of your hard-earned savings and prevent you making costly mistakes.

O’Connor says: “There is sometimes an element of peer pressure at retirement age, when listening to stories of how other friends are choosing to access, save and spend their pensions. Everyone’s retirement outlooks and pension arrangements are very different, and you may find that the advice of friends is not always pertinent to your own situation.”

Morrissey adds: “It may be a good idea to take financial advice to make sure you are happy with your long-term approach and to avoid pitfalls, like taking too much income too early or purchasing an annuity that doesn’t meet your needs.”

• Read more about how much it costs to get financial advice.