Planning your retirement

Retirement countdown

In the table below, we give you an idea of how much you may have to save each month to provide an income of £5,000 or £10,000 a year when you retire.

You will probably also receive the state pension – £4,953 a year for a single person in 2009-2010. For example, a 40-year-old man who wants a retirement income of £10,000 plus the state pension needs to save £290 a month – nearly £3,500 in the first year.

Table notes

Figures should be used as a guideline. The table assumes investment growth of 4.5% a year above inflation at 2.5%, less charges of 1.5% for the first 10 years and then 1% thereafter. Also pension contributions increase by 4% a year based on an average yearly earnings' increase of 1.5% above RPI. Figures assume 20% tax relief on contributions. The income shown in the table is a single-life pension, which increases annually in line with price inflation.

Overall, the message is simple – the earlier you start saving for retirement, the less you have to put away.

Up to 10 years until retirement

Work out what you’ll need to live on in retirement. Don’t forget to exclude things like your mortgage – if it will be paid off by the time you retire – and travel to and from work. Make an allowance for extras such as increased utilities bills and perhaps more frequent holidays

Work out how much pension you can expect to receive from your present and past providers or employers. Ask them to send you an up-to-date statement

You'll also need to get a forecast of your state pension which you can do through the Pensions Service

Add your pensions together to see whether there is a shortfall. There probably will be, so decide whether you can save for your retirement – any amount can make a difference. However, if you expect to have a very low income in retirement, find out whether savings will affect means-tested benefits (see Contacts)

Take financial advice on where to put your savings – a pension might not be the best place. Get the financial adviser to check that your current pensions and savings are working hard enough. If you contracted out of the state scheme, ask your adviser whether this is still the best option

Up to five years until retirement

Consider moving any stock-market investments (including pensions) to safer havens to avoid losing out if there are any last-minute falls. If necessary, get help from your financial adviser

Get another state pension forecast and, if necessary, pay voluntary National Insurance contributions to make sure you get the full state pension. Check first to see whether you need to by speaking to either the National Insurance Contribution Office or The Pensions Advisory Service for more information

Start paying off debts

Make a will if you haven’t already

Further increase savings towards retirement if you can, unless doing so will affect any means-tested benefits you are entitled to

Track down your old pensions. Get help from the Pension Tracing Service if necessary

Six months until retirement

Contact your current and previous pension providers to find out what your final pension will be and how it will be paid to you

Make an appointment with a specialist independent financial adviser for advice on getting the most income out of your pensions. Tell the adviser if you are in ill health or smoke – this could mean more income

Let your tax office know you will be retiring in six months’ time

If you are deferring taking your state pension, let the Pensions Service know

Planning to continue working part time? Make sure your employer knows when you are over state pension age, as you do not need to pay any National Insurance contributions

Contact your local authority to register for free travel – it’s available from age 60 for both men and women

At least four months before retiring, you should receive a pack telling you how much state pension you'll receive. If it doesn't arrive, contact the Pension Service on 0845 066 0265

Notes …

* This newsletter has been prepared with all possible care to ensure its accuracy. It is based on our current understanding of legislation and HMRC practice. 
* Neither Aisa Direct Ltd nor any of its employees can accept responsibility for any errors or omissions. You should seek further professional advice prior to action.