Budgeting for retirement

How to make your pension go further

Figuring out how much you’ll need to see you through retirement can be a complicated business.

If you’re nearing retirement age and looking for ways to make your money go further, we’ve put together a few ideas to help.

Defer your pension

One action that could influence your future pension income is if your circumstances allow you to defer (delay) taking your pension – both State and personal.

How to budget your money in retirement

State Pension

Before you reach the State Pension age, you’ll get a letter explaining how to claim your State Pension. However, you don’t have to claim it straightaway. And if you don’t, it will automatically defer until you do. 

For every week you delay claiming your State Pension, the amount you’ll get when you do eventually claim it increases. If you reached State Pension age on or after 6 April 2016, this works out as an annual increase of just under 5.8% Footnote [1].

Gov.uk has more information about deferring your State Pension.

Personal pensions

With personal pensions, you’re not tied to a set retirement age. So, you can leave your money invested and continue paying in if you want.

However, many personal pensions have an upper age limit. In most cases, you’ll need to start taking your pension money before you turn 75. Some providers won’t accept more contributions into your pension after 75 either. And if they do, there’s no tax relief added to personal contributions after this age. Speak to your pension provider to check if your pension has an upper age limit.

The longer you wait to take money from your pension pot, the more time it could have to potentially grow. But remember, the value of investments can go down as well as up and you could get back less than has been paid in.

You should speak to your employer or pension provider to understand what the implications or rules are around delaying taking your personal pension.

Continuing to work

If you decide to keep working past retirement, continuing (or increasing) your pension contributions could be a smart move.

For personal pensions, assuming your contribution is within your annual allowance, factor in tax relief and you could be increasing the value of your net contribution by 25% - and if you continue to work, you can start to claim your pension as soon as you’re ready. Please note that tax treatment will depend on your individual circumstances and could change in future.

If you're thinking about deferring your pension, or want to carry on working after retirement and continue paying into your pension, it's a good idea to get financial advice. 

Reducing your outgoings

Whether you’re in the run-up to retirement or already claiming your pension, cutting back on some items could make a big difference to your budget.

To start, draw up a list of your income or expected income and your outgoings. You’ll then see if there’s a gap and identify where you can cut back.

Using your home

Some people choose to use their home as their nest egg – so could you consider releasing some of your home's value as cash?

If you're able to downsize, you could end up releasing a lot of money. 

Alternatively, you could take out a lifetime mortgage, which is a long term loan secured against your home that is usually repaid either when you die or need long term care. You wouldn’t need to move out and it could give you a much needed boost to your pension income. This is a type of equity release.

You have to take financial advice when you opt to take out a lifetime mortgage. It's important that you consider the benefits, costs and risks carefully before deciding whether a lifetime mortgage, or other equity release product, is right for you. If you're thinking about equity release, you must speak to an equity release adviser.

More about life in retirement

See what else you need to think about as you get closer to that all-important milestone – and once you’re retired too.

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