Retirement planning in your 50s

With a decade or so to prepare for your retirement, find out what you need to know.

Most people in the UK retire in their mid 60s. So if you’re in your 50s, you might still have another decade or so to prepare for your retirement. The closer you get, the more you might worry about how much you’ll need to live comfortably. Fortunately, there’s an easy way to find out, and a number of things you could do to improve your situation if needed.

Budgeting

It can be difficult to know how much money you’re going to need in retirement and it’ll entirely depend on your goals. Thanks to research from the Pensions and Lifetime Savings Association (PLSA), you can visualise how far your money can go in retirement. Its Retirement Living Standards are categorised into ‘minimum’, ‘moderate’ and ‘comfortable’, and showcase the lifestyle you could achieve at three different income levels.

To achieve a minimum standard of living, it’s predicted that a single person would need £14,400 and a couple would need £22,400.
To achieve a moderate standard of living, it’s predicted that a single person would need £31,300 and a couple would need £43,100.
To achieve a comfortable standard of living, it’s predicted that a single person would need £43,100 and a couple would need £59,000.

To help picture the kind of lifestyle you could have at these income levels, the PLSA has matched up common goods and services with each living standard:

A minimum lifestyle covers all your basic needs. On top of this, you could expect to eat out once a month, enjoy a holiday in the UK once a year and take part in some leisure activities twice a week. You wouldn’t however, expect to have the budget to run a car.
A moderate lifestyle covers all your basic needs and you’d have a little more financial security. You could go abroad once a year, enjoy a weekend away in the UK and eat out a few times a month. You’d also have the flexibility to run a car and replace it every 10 years.
A comfortable lifestyle would cover all of your needs as well as a few luxuries and, of course, offer increased financial freedom. You could enjoy two foreign holidays a year, regular beauty treatments, make home improvements and replace your car every five years.

It could be worth budgeting with these income levels in mind as the more you save now, the more freedom you can expect to enjoy in the future.

Increasing your pension contributions

Now’s a great time to start looking at your pension contributions and ensure you’re on track to retire with enough money. You can use a tool like our pension calculator. A pension calculator will show you how much your pension could be worth at retirement and how long it could last if you draw down a desired amount each year.

You can specify when you want to retire (55 is usually the earliest possible age, rising to 57 from 2028), and you can choose whether to take out a tax-free lump sum at age 55 or include the State Pension in your calculations. You’ll quickly see whether you’re on track or not. If you’re a little behind where you want to be, you could consider:

Increasing your contributions
Consolidating your old pensions
Contributing a lump sum
Reducing your expenses
Downsizing your home.

Paying off your mortgage

You might want to consider the benefits of reducing your expenses, for example by paying off your mortgage ahead of your retirement. If you’re able to, making overpayments in your 50s could ensure you get closer to owning your property before you stop working. There are many reasons why this is a common retirement goal. Being mortgage-free in retirement might enable you to spend more of the money you’ve saved on things you love, and also gives a sense of security.

Investing in an ISA

Consider making the most of tax benefits by investing money in an ISA alongside your pension contributions. Using an ISA’s another way to save for retirement and should you decide to retire early, you might choose to withdraw money from your ISA tax free and use it to bridge the gap, leaving your pension invested until you can access it.

Another benefit is that the money can often be withdrawn without fees in a short time frame making it particularly useful for emergencies and unexpected costs. Before making any withdrawals make sure you read the small print as some types of ISA, such as a Lifetime ISA, there’s a 25% charge if you’re not using the money to buy your first home or fund your retirement.

It’s worth keeping in mind that you can only save up to £20,000 in ISAs per year, and while this can be across multiple accounts, you can’t go over the annual limit. For Lifetime ISAs (LISAs) in particular there’s a separate limit of £4,000 per year and this counts towards, and is not in addition to, your annual ISA limit of £20,000. Read more about what the differences are and how to use pensions and ISAs.

Estate planning

While you may still be a decade or so away from retiring, your 50s are a good time to look at your estate planning - from reviewing your will to making any necessary changes to your life insurance policy.

If you already have a will, review it and make sure it still reflects your wishes. Your life may have changed since you last looked at your will - have your children grown up and moved out? Do you now have grandchildren? Have you moved house or purchased a second property or significant asset? These are all reasons to double check your will and make sure it’s up-to-date. If you don’t yet have one, now’s the time to write a will.

When it comes to writing a will and considering what you can leave your loved ones, it’s important to know the rules surrounding inheritance tax (IHT) and your pension. When you die, your beneficiaries will be charged inheritance tax on the items in your estate such as property, money and personal belongings. However pensions sit outside of your estate and, if you pass away before the age of 75 and your pension hasn’t been touched, it can be passed on entirely inheritance tax free to your loved ones. When it comes to IHT and pensions, there are conditions which apply depending on your age and pension type, so it’s worth reading our guide to pensions and IHT.

Ensure you have sufficient insurance

To provide further financial protection for your loved ones, consider reviewing your life insurance policy - is it suitable for your age and health status, and is the amount you’re covered for enough? While it’s sensible to have life insurance at any age, now’s a good time to check your policy. If you don’t have a current policy, LifeSearch offers mortgage life insurance, family life insurance and critical illness cover and if you aren’t sure what policy you need, you can speak to one of their experts or compare policies online. You might want to leave your loved ones with a cash lump sum, help them pay off the rest of a mortgage or pay for the cost of your funeral. MoneyHelper has an extensive guide which explains how over 50s life insurance works, what to watch out for, and what the alternatives are.

Speak to Pension Wise

Once you turn 50, you’re able to book an appointment with Pension Wise, a government service set up to help people understand what their options are when they retire. The great thing about Pension Wise is the appointments are free and completely impartial. So while this isn’t a form of financial advice, it can give guidance and equip you with the clear information needed to make decisions about your pension savings. Find out what happens in a Pension Wise appointment.

Speak to a financial adviser

In some cases, it might be worth speaking to a financial adviser. If you have little experience managing your finances, and feel as though the free guidance available isn’t enough to help you make an informed decision about your pensions, it might be helpful and worth the money to get professional financial advice. Use the Citizens Advice website to help guide you through the process.