As you near your planned retirement date, you might be thumbing through holiday brochures and drawing up a list of things you want to do once you stop work.
But this run-up to retirement is also a key time to finesse the finer details of your financial plan to ensure it will fund the lifestyle you are hoping for.
Two years before retirement is an ideal opportunity to do this—close enough to start finalising details, but with enough leeway to make adjustments if needed.
At this stage, the focus may be on managing risk while also deciding on the most appropriate way to take an income for retirement. Remember, this may evolve from the early to later years of your retirement, so build flexibility into your plans where possible.
The checklist below highlights key issues to consider at this stage.
Dial down investment risk
Many people will still want to keep part of their pensions and ISAs invested in growth assets like equities, particularly if they plan to keep this money invested into retirement. But many will be looking for a more balanced approach, shifting some funds into less volatile holdings, such as corporate bonds, gilts, cash, and real assets like property or infrastructure funds.
Effective diversification can help reduce losses in the event of a market downturn. Even if you remain primarily invested in equities, apply this diversification principle across different funds, geographies, and sectors.
If you plan to buy an annuity upon retirement, it is important that some or all of your assets are in lower-risk investments (such as bonds and gilts) to mitigate market falls.
Always remember that the value of pension savings can go down as well as up so you may get back less than you save.
Refine your budget
If you are two years from retirement, you should have a clearer idea of likely spending needs once you stop working. Will you have repaid the mortgage, or will you need to make repayments for a few more years? The higher inflation we’ve seen in recent years may mean you need to re-adjust previous assumptions about retirement spending, particularly given the rise in essential household costs such as energy and food bills.
This is just one side of your retirement budget, though. Now is a good time to get up-to-date valuations for your company pensions, SIPPs, ISAs, and other investments. Don’t forget your State Pension entitlement. You can check what you will receive, and when—at www.gov.uk/check-state-pension. This date is important, as the State Pension age will start rising again from April 2026, so don’t assume you will get it on your 66th birthday. If you are affected by this you may need to adjust budgets to cover these additional months, or adjust your retirement date.
Plan your income strategy
With a clearer idea of spending, it’s time to decide how you will take pension benefits. This can be complex, as many people retiring today have a mix of different pension types, alongside ISAs and other investments.
Consider in what order you might use these savings, and how much you will take. Remember, these funds need to last throughout retirement, which could span decades. Taking too much in the early years risks running out of money later on.
When it comes to pensions, weigh up the different income options, be it taking one-off or ad hoc lump sums, drawing down a regular income, or using funds to buy an annuity. Ensure you understand the tax implications of each option, including income tax and inheritance tax considerations.
One key question: what proportion of your essential bills will be covered by guaranteed income—such as the State Pension or any defined benefit pension payments? If these don’t cover your day-to-day expenses, you may want to explore annuity options.
Remember, you can take a mix-and-match approach — using part of your savings to buy an annuity while leaving the remainder invested for flexibility. Alternatively, you may opt to leave funds invested initially, with a view to purchasing an annuity later.
Look to the longer term
It’s easy to focus solely on the looming retirement date, but major life changes are an opportunity to review your wider finances. For example, you may no longer have access to employer benefits like life insurance or private healthcare.
Check that your will is up to date, and consider other issues such as setting up a power of attorney, planning for future care costs, or managing potential inheritance tax liabilities. These may not be immediate concerns, but having a plan in place gives you more options in the future.
Retirement isn’t a ‘one-and-done’ event—it’s a process, and your financial needs will change as you age. A robust retirement plan should reflect this.
Get guidance and advice
Some of the most complex financial decisions people make are around retirement, so it’s worth taking the time to investigate and getting a second opinion.
You can find a wealth of information, calculators, and tools on our website to help you crunch the key numbers.
Alongside this, you can get free and impartial guidance from the government-backed Pension Wise service, which offers both telephone and face-to-face appointments to talk through your options. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 011 3797.
Those with more complex financial situations may also want to seek specialist financial or tax advice. An Independent Financial Adviser will look at your personal circumstances and your financial plans and recommend products to help you meet your needs, though this will have a charge.
Important information - This is for information purposes only and the views contained are not to be taken as advice or a recommendation for any product, service or course of action. You cannot normally access your pension savings until age 55. This is due rise to 57 in 2028. Tax treatment depends on individual circumstances and pension rules may change in the future. If you need advice about how any of this information applies to you personally, you should contact an authorised financial adviser.