Seven Steps To Retire In Your 50s
What does retirement look like to you?
Retirement often revolves around relishing life’s simple pleasures or embracing newfound financial freedom for spontaneous pursuits, fulfilling long-held dreams, and ambitions once sidelined by work commitments.
Are you eagerly anticipating retirement, feeling assured that your plans are well-managed? Or do you harbour unease, wondering if you’ve adequately prepared? Perhaps you aspire to retire early but question if it’s financially viable.
Achieving a comfortable retirement entails no shortcuts, despite prevalent misconceptions suggesting otherwise. It demands diligent planning and strategic decision-making.
Two-thirds of individuals in the UK aren’t saving enough to achieve an adequate retirement income.1 But how much is that? Research has shown that 77% of savers don’t know how much they’ll need in retirement.2
A £1 million pension pot might sound substantial, but it’s the pension sum many of us will require to sustain our current lifestyle throughout retirement. While it may initially appear daunting, attaining this goal is feasible with the adoption of prudent financial habits and comprehensive planning strategies.
1The People’s Pension – August 2022
2Pensions and Lifetime Savings Association (Based on research involving 249 participants) October 2023
At a glance
- A couple may need in excess of £59,000 a year to live a ‘comfortable’ retirement, according to the Pensions and Lifetime Savings Association.
- You could get tax relief of up to 45% on pension contributions, if you’re an additional rate taxpayer, meaning a £2,000 contribution has a net cost of just £1,100.*
- For most people the Annual Allowance is £60,000, but this can be tapered to a lower level if you have a high income. However, personal contributions are also limited to 100% of your earnings in the tax year the contribution is paid.
- Compounding has the potential to significantly improve the return on your investment, highlighting the importance of starting early.
*On the basis that any tax relief over the basic rate is claimed via your annual tax returna nd that you have invested the additional tax relief claimed.
What do you want in retirement, and how much will it cost?
Research for the Pensions and Lifetime Savings Association shows what kind of lifestyle you could have in retirement.
Source: Pensions and Lifetime Savings Association, March 2024
| Minimum | Moderate | Comfortable | |
| Single | £14,400 a year | £31,300 a year | £43,100 a year |
| Couple | £22,400 a year | £43,100 a year | £59,000 a year |
| Standard of living | Covers your needs | More financial security and flexibility | More financial freedom and some luxuries |
Why save into a pension?
Savings vehicles like ISAs offer significant flexibility and are effective means to accumulate wealth for the future. However, pensions possess a distinct advantage: tax relief. Individuals under 75 can enjoy a 25% boost on their pension contributions from day one, as everyone receives 20% basic rate tax relief on their pension contributions from the government.
Moreover, higher or additional rate taxpayers may be eligible for additional tax relief through their annual tax returns. Additionally, any growth within a pension is exempt from Income Tax and Capital Gains Tax, providing further enhancement to your retirement fund.
It’s noteworthy that pensions aren’t generally considered part of your estate for Inheritance Tax (IHT) purposes. Consequently, saving into a pension helps circumvent the 40% IHT liability that would apply if the funds were held elsewhere. This consideration can significantly impact your future plans.
The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.
How much does each £2,000 contribution cost you?
Contributing £2,000 monthly into your pension could be more attainable than you realise, largely due to tax relief on your contributions. This estimate is predicated on the presumption that contributions are eligible and that any amount exceeding the basic rate of tax is reclaimed through your annual tax return and subsequently allocated to your pension.
How much can I pay into a pension?
For most individuals the tax benefits on pension contributions is typically limited to £60,000 per tax year. This include contributions from you, your employer, any third party as well as the tax relief added by the provider. The contributions you make are also limited to 100% of your earnings in the tax year they are paid.
Your Pension Annual Allowance may be tapered if you are a high earner – read more here.
Seven top tips for boosting your retirement fund
It’s undeniably tempting to prioritise immediate financial objectives and rewards, especially when retirement may seem distant.
You might find yourself thinking that you’ll start saving for the future “when I can afford to” or “when I’m earning more money.” However, adopting this mindset carries the risk of procrastination and potentially leaving it too late to adequately prepare for retirement.
The crux of attaining a comfortable retirement lies in saving as much as possible, as early as possible. By embracing this approach, you lay a solid foundation for securing your financial future and ensuring peace of mind during retirement.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
For most people, contributions are limited to the £60,000 annual allowance. This includes any employer contributions and tax relief applied to your personal contributions. Tax relief on your personal contributions is also limited to the level of your relevant earnings in the tax year, or £3,600 if earnings are lower than this.
To capitalise on their annual pension allowance, an individual with a gross annual income of £200,000 could make a gross monthly pension contribution of up to £5,000. As an additional rate taxpayer, the tax relief at 45% on these contributions amounts to £2,250 per month. Their net contribution after allowing for the tax relief is therefore £2,750, equivalent of 16.5% of their gross earnings. This does not factor in any employer contributions that the individual might benefit from.
Starting at 35, investing £5,000 each month, the employee could expect their pension pot to be worth approx. £2,520,000 by the time they reach 55.
Please note that you can currently access your personal pension at 55 but this is increasing to 57 in 2028.
If they started at 45, the pot would be worth approx. £861,000 a decade later.
Based on £5,000 invested each month, increasing 2.5% a year: return 5% a year, compounded monthly, after charges. These figures are only examples and are not guaranteed – they are not minimum or maximum amounts. What you will get back depends on how your investment grows and on the tax treatment of the investment. You could get back more or less.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Initiating saving sooner enables your money to remain invested for a longer duration, significantly enhancing the prospects of its growth. This phenomenon is propelled by the power of compound investing, where regularly investing money allows the returns generated to compound over time.
Compound investing serves as a potent tool, wherein the returns you earn have the potential to generate additional returns. Over time, this compounding effect can yield substantial gains, irrespective of the fluctuations in financial markets.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
After initiating contributions to a pension plan, it’s essential to periodically assess and adjust your contribution levels. Simply allowing it to persist at a lower contribution rate may not align with your retirement objectives.
Whenever you receive a pay increase, contemplate raising your pension contribution by a corresponding percentage. Even a minor uptick can yield substantial benefits over the long term. Additionally, consider investing bonuses or inheritances as a strategic approach to inch closer to your savings target. Making larger, one-time payments can exert a meaningful influence on your retirement fund when invested over several years.
It’s also worth finding out if you have any unused annual allowance from previous years. Subject to certain limits this could enable you to pay in more than £60,000 in one year and still get the tax benefits on the whole amount. You can ‘carry forward’ unused allowances for up to three years. For instance, in the 2024/25 tax year you can use this year’s £60,000 annual allowance, then anything unused from 2023/24 (£60,000), then 2022/23 (£40,000) and finally from 2021/22 (£40,000), up to a theoretical maximum of £200,000 – provided you were a member of a pension scheme during each of those years, and made the relevant earnings.
The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
You can usually access your pension from age 55 (rising to 57 in 2028). This is when you can take up to 25% tax-free as a lump sum. Many people do, perhaps to pay off their mortgage or make a big-ticket purchase.
However, if feasible, it’s advisable to refrain from accessing your pension for as long as possible, allowing it ample time and potential to grow.
Keep in mind that a modern retirement might span 30 years or even longer. This prolonged duration underscores the significance of maintaining your standard of living throughout retirement, which is facilitated by maximising the growth potential of your pension fund.
You might accumulate several workplace pensions with different employers during your career. By the age of 45, UK adults have on average changed jobs 11 times.1
Keeping tabs on all your pensions can indeed pose a challenge, just as it can be difficult for your pension provider to stay updated on your whereabouts. For instance, many individuals forget to inform their providers when they change addresses. Three in five people don’t know where all their pension details are. One in four people has lost track of one or more of their pensions.2
It adds up to a lot of money. Pension pots worth nearly £37 billion are lost. That equates to over 1.6 million savers in the UK,3 a number that’s increased by 75% over the last four years. That’s money that could be helping people towards a more comfortable retirement. That could include you.
You’ve got a few options for tracking down forgotten pension pots:
Reach out to each former employer with the dates of your employment. They should be able to confirm the pension provider they contributed to for workplace pensions during that period. Ensure you have your National Insurance number handy.
Use the government’s free Pension Tracing Service, which can assist you in finding old employers. Once you obtain their contact information, contact them to request the name of your pension provider and policy number.
If you recall the name of your old pension provider, reach out to them directly. You’ll likely need to provide your name, address, and National Insurance number.
1, 2 Gretel – May 2024
3 Pensions Policy Institute, October 2022
Once you’ve gathered a comprehensive view of your pensions, it’s advisable to seek advice.
Understanding how your accumulated pensions will contribute to your desired retirement is crucial. Evaluate the performance of your investments – are they still suitable for your needs? Identify any restrictions or significant benefits you should be mindful of. It’s possible that adjustments may be necessary, particularly if a pension hasn’t been reviewed for an extended period.
You’ve dedicated considerable effort to earning your money. Taking the time to optimise your pension plans can ensure that all your assets are maximising their potential in preparation for your retirement.
The value of an investment with St. James’s Place will be linked directly to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Book a no-obligation review
We’d be delighted to review your existing retirement plans, and wider financial circumstances, to help you approach retiring as soon as possible, in a tax-efficient way. Book a review with one of our experts today.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time, and are generally dependent on individual circumstances.
