Planning for Retirement Beyond the State Pension

Start with what you actually spend, not a rule of thumb

Many people aim for a percentage of their working income in retirement, but that can be misleading. If you earn £45,000 but spend £30,000 a year, replacing 60% of your salary gives you £27,000 – which may be too little. A better approach is to build a realistic budget from your current spending. Look at your bank statements for the last 12 months. Split your outgoings into essentials (housing, council tax, utilities, food, transport, insurance) and discretionary items (holidays, hobbies, eating out, gifts). Then adjust for changes in retirement: your commute may disappear, but you might spend more on heating during the day, or take up new interests. Many retirees find spending follows a U-shape: higher in the early active years, lower in the middle, then rising again if care needs emerge. Aim for a range, not a single figure.

Review what you already have – including your state pension forecast

The state pension is a foundation, not a full solution. For the 2024/25 tax year, the full new state pension pays a little over £11,000 a year. That is roughly the same as the personal allowance (£12,570), so if it is your only income, you may pay no tax. But it is unlikely to cover all your needs. Check your state pension forecast using the government's online service – it takes about 10 minutes and shows how much you could get and when. You can also see if you have gaps in your National Insurance record that you could fill voluntarily, though this is not always worth it. Then gather details of every workplace and personal pension you have. Old pots from previous jobs are easily forgotten. You can trace them using the government's pension tracing service. Once you have the list, note the current value, the annual charge, and the default investment fund. Charges of 0.5% versus 1% may not sound like much, but over 20 years they can make a difference of tens of thousands of pounds.

Turning a pot into an income: the options and the tax traps

When you reach 55 (rising to 57 in 2028), you can access defined contribution pensions. The usual choices are:

• Buy an annuity – you swap your pot for a guaranteed income for life. Rates have improved, but you lock in and cannot change your mind.
• Use drawdown – you keep the pot invested and withdraw money as needed. This offers flexibility but investment risk remains.
• Take a mix – many people use part of their pot for an annuity to cover essential bills, and keep the rest in drawdown for discretionary spending.

Remember the tax rules. You can usually take 25% of your pot as a tax-free lump sum, up to a cap. The rest is taxed as income. Withdrawing too much too quickly can push you into a higher tax band and leave you short later. Also watch out for the money purchase annual allowance, which reduces how much you can pay into a pension after you start taking taxable income. A common mistake is to withdraw a large sum to put into a savings account, only to lose the tax shelter of the pension.

Consider reducing hours before stopping entirely

Retirement does not have to be a cliff edge. Phased retirement – going part-time, taking a less demanding role, or becoming a consultant – can ease the transition. It also helps financially. Every year you work part-time and delay full withdrawal is another year your pension pot can grow, and one less year you need to fund from savings. You might also keep paying National Insurance, which could boost your state pension if you have gaps. Many employers now offer flexible working by law, so it is worth asking. If you reduce hours, check how it affects your workplace pension contributions and any death-in-service or income protection cover. You may also want to delay taking your state pension, which increases it by roughly 5.8% for each year you defer. For some, that is a valuable boost; for others, taking it early is better if health or cash flow is a concern.

Practical steps to take this year, whatever your age

You do not need to solve everything at once. Start with these actions:

• Check your state pension forecast and note the date you can claim it.
• List every pension pot – workplace, personal, old ones – and find the charges.
• Estimate your retirement spending for three phases: active early years, quieter middle years, later years with possible care costs.
• Increase contributions if you can – even 1% more from your salary makes a difference over time, especially if your employer matches it.
• Think about your access age – if you plan to retire at 60, you need savings outside a pension to bridge the gap until 57 (or later).

Finally, talk to a regulated financial adviser if your situation is complex. A one-off review can be money well spent. But even without advice, understanding your numbers puts you in control. The state pension is a welcome base, but a comfortable retirement is built on checking, planning, and adjusting as life unfolds. You have more options than you might think.