Article How to plan for retirement – a step by step guide

Planning for retirement matters. Everyone wants to have a happy and fulfilling retirement lifestyle, but how do you achieve it? Well, a key part of it lies in the preparation, as a good plan could have a significant impact on your retirement income. Even if it’s still a few years away, or just around the corner, it’s always a good idea to think ahead to help make sure you’re on the right track.

To help you plan, here are six steps to get you started.

How to plan for retirement: 6 Steps

1. Think about what you’ll do when you come to retire
2. Understand how much money you need for the retirement lifestyle you’re aiming for
3. Know the sources of income you’ll have 
4. Get on top of your savings before it’s time to access your benefits
5. Make a plan to manage your debt 
6. Decide when and how you’ll access your pension

1. Think about what you’ll do when you come to retire

When it comes to retirement planning, we typically focus on the financial matters – but a big challenge can be having more free time on your hands. Creating your very own ‘lifestyle plan’ of how you want to spend your post-working life is a good starting point.

Think about the things you’ve not had a chance to experience yet – and what hobbies, interests or passions you want to pick up or continue. Who do you want to spend time with, and where? Maybe you want to continue working in some capacity, or perhaps volunteer.

By working out which parts of your current life are most fulfilling, you’ll be able to see more clearly what you want the future to look like. You can try out our picture your best life tool to help you do this. There’s no one-size-fits-all solution. Maybe you just want to spend the time relaxing with friends or family or are looking forward to going on holiday. Remember, there are plenty of free things to do – not everything needs to be an additional expense.

Writing down a plan could help to focus your mind and keep your goals current and on track.

2. Understand how much money you need for the retirement lifestyle you’re aiming for

Now you’ve worked out what you want your retirement lifestyle to look like – you should have a clearer picture of how much money you might need. Remember, your savings need to cover the whole of your retirement.

Consider creating a likely future monthly budget to reflect your day-to-day outgoings for retirement, as your spending habits will probably change. For example, you may spend less on travel and work-related expenses, and you might have paid off your mortgage – but during retirement, you could end up spending more on heating, recreational activities and health care.

When you write down what you spend now and how that could change when you retire – take inflation into consideration. As time goes on, the prices of things tend to increase so having an extra safety net in place can be useful.

What’s a good monthly retirement income?

How much you need to live comfortably in retirement will vary from person to person, depending on factors like where you live and what kinds of purchases you make. For example, if you love to travel and live in an expensive area, you’re likely to need a higher pension income to maintain the lifestyle you want.

Try our Your retirement planner tool to help you build a clearer picture of how much you might want to aim for. You may also have access to similar tools in your online pension account.

3. Know the sources of income you’ll have 

So, you’ve now worked out how much you might need for your ideal lifestyle in retirement – another key part of your preparations ticked off. But how much do you have now, and are you on track to meeting that figure?

Your retirement pot could consist of workplace pensions, personal pensions, individual savings accounts (ISAs), investments and the State Pension.

If you’re part of a workplace scheme, check to see how much you’ve got saved in your pension pot – you should consider regularly reviewing this to make sure you’re saving enough.

The good news is that if you’re eligible for auto-enrolment (legislation that makes pension contributions automatic), your employer will have made contributions to your workplace pension too. You can find out more about auto-enrolment and if you’re eligible on the government’s website.

Don’t forget about your previous pension pots

It’s also worth checking to see where all your workplace pensions are if you’ve worked at more than one company. ​​Tracking all your pensions down is a good place to start to make sure you’re not losing out on any valuable income. Our page on how to find a lost pension can help you get started.

As long as you’ve kept your address details up to date with each provider of your personal or workplace pension pots, you should receive a pension statement for each pot each year. If you can’t remember all the details – don’t worry, it’s easier than you might think to find them. The government offers a free service to help you search for lost or missing pension pots.

You might end up pleasantly surprised.

The State Pension – how much do you get and when do you qualify?

If you’re eligible for the State Pension from the government, the amount you’ll receive might be different from other people, as it’s based on your National Insurance contributions and your own personal circumstances.

The full new State Pension is £203.85 per week, but not everyone will receive this amount.¹ You can check your State Pension forecast on the government’s website to see how much you could receive, when you can claim, and if you could improve it. You can also find out more by reading our article 'What is the State Pension and how does it work?'.

Something to bear in mind is that you’ll receive your State Pension for the remainder of your life once you hit your entitlement age and start claiming it. ​​However, your workplace and personal pensions could be a set amount from when you begin to access them if you choose a monthly income drawdown.

The State Pension age is gradually rising and will increase to age 67 between 2026 and 2028.² It’s planned to rise again to age 68 between 2044 and 2046, but the government is keeping these dates under review. To see how old you’ll be when you can begin to receive the State Pension, use the government's free tool, check your State Pension age.

4. Get on top of your savings before it’s time to access your benefits

​​​If you think you might need to save more for retirement, there are a few things you could consider – this isn’t guidance or advice.

• Start sooner than later. The earlier you start putting money away, the longer it could have to potentially grow. It’s important to remember that the value of an investment can fall as well as rise and isn’t guaranteed. The final value of your pension pot when you come to take benefits may be less than has been paid in.
• Set yourself achievable goals and work towards them. Each time you reach a small milestone, take time to recognise how good it feels to keep you motivated.
• Review your current workplace pension contributions regularly. Are they at the right level to reach your goals? Do you need to make changes
• Check your current spending habits to see where you can save money. There are lots of apps on the marketplace. For example, the Emma app is designed to help you manage money, while Too Good to Go can help you pick up a deal on fresh food from cafes, restaurants or shops that would otherwise go to waste.
• Retire a bit later in life. You might decide that you want to keep working even if it’s part time or flexible hours which could give your more time to improve your savings.

We recommend you speak to a financial adviser first to see what’s the best option for you. They are trained professionals who can understand your personal circumstances and come up with a plan to help you reach your retirement goals. You can find a financial adviser through MoneyHelper. There’s likely to be a charge for financial advice.

5. Make a plan to manage your debt 

Most of us will have some kind of debt in our lifetime, and that’s not necessarily a bad thing (take mortgages or student loans for example). However, different types of debt come with different rules and risks. ‘Secure’ loans – where the money borrowed is tied to an asset you own (like a house) – come with the risk of that asset potentially being repossessed if you fail to keep up with payments. Meanwhile, ‘unsecure’ debt like personal loans or credit cards aren’t tied to your assets, but often come with much higher interest rates which can quickly get expensive. 

Struggling to keep on top of debt can be stressful. Any debt you’re still paying off after you stop working will use up income that you could be putting towards enjoying your retirement. So, if you’re able, making a plan to manage your debt now and before entering retirement could help create some peace of mind – as it’s one less thing to think about.

Prioritising your debts could help you create a plan of action to help tackle each debt one by one. Think about:

• What debts are most important to pay off – which ones have the highest interest rates and are more important versus more manageable, lower risk debts.
• How much is owed for each debt – this could be personal loans, credit cards or even your mortgage.
• Using spare money to pay off other debts – but anything you can afford to pay towards your debts must be shared out fairly between your creditors.³

Read more tips for managing debt and what support is available in our Financial Wellbeing flipbook.

6. Decide when and how you’ll access your pension

If you’ve not already, it’s now time to set a target retirement age and think about how you’re going to access your pension pot.

When you reach age 55 (57 from April 2028), you’re able to access some or all of your pension benefits. When thinking about your options you should consider a few factors that will influence the type of income option that best suits you – such as your personal circumstances, lifestyle and health.

Some contracts might restrict the retirement options available to you and all options are subject to tax implications, so it’s important to at least consider consulting a financial adviser. Flexible income, guaranteed regular income, cash lump sum or a combination? Our Your retirement planner tool helps explain these, sometimes complex, terms in a simple way so you can be better informed – and prepared.

There you have it, you’re set for the next chapter

By following these six steps you’ll feel more prepared – and hopefully empowered – to take on life after work.

Financial planning for retirement really is important to make sure you have enough income to support you and your family. But it’s also just as important to plan for the moments that matter as well as some fun along the way.

Plan ahead while being realistic. People tend to be living longer lives than they did decades ago, so bear in mind your retirement income will need to support you for potentially 15, 20, 30 plus years after you retire.

Get further help if you need it

Our Aegon Assist team can offer free guidance and are happy to talk you through your options for retirement, though they are unable to provide you with advice.

If you're in any doubt, we recommend you speak to a financial adviser. You can find a financial adviser through MoneyHelper. A financial adviser is likely to charge for their service and should provide details of their charges upfront.