Your major task at retirement is turning your pension funds into an income that can replace your salary, as this determines what you will have to live on in old age.
This will require careful planning, and can be time-consuming and challenging, but you must make the most of the money you have saved.
Unless you are in poor health, it is wise to plan for the long term. Read our guide to getting your retirement finances off to the best possible start here.
Assuming you have done this or it is in hand, there are final tasks and some big lifestyle changes to consider in the final months before you leave your job.
Look back over working life and find small pots
Your state pension and any large private and work funds will provide the bulk of your retirement income.
But it’s worth looking back over your entire working life in case you have missed any funds built up during short periods of employment in the past.
‘Tracking down lost pensions can potentially add thousands of pounds to how much you end up with in retirement,’ says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
Helen Morrissey: You need an old employer’s name or the pension provider’s to use the Government’s free Pension Tracing Service
‘It’s a massive problem with the Pensions Policy Institute estimating there are almost 3.3million lost pensions worth a staggering £31.1billion in the system.’
She advises making a list of all your old employers, checking to see if you have paperwork for each of them, and making contact with the pension schemes.
It you don’t have paperwork, you can use the Government’s free Pension Tracing Service.
‘All you need is either your employer’s name or that of your pension provider. The service can’t tell you if you do have a pension with them but they can give you contact details so you can find out.’
‘Once you’ve found your lost pensions it might make sense to consolidate them into a low-cost Sipp. However, before you decide to bring your pensions together make sure you aren’t potentially incurring exit fees or missing out on benefits such as guaranteed annuity rates.’
Jonathan Watts-Lay, director of Wealth at Work, says: ‘A person will have on average nine jobs in their lifetime, so could easily end up with many different pension pots with several providers which can easily be forgotten about.
‘If the company no longer exists contact Companies House, or charities can be found using the charity register. People should ask for up-to-date statements, so it is clear how much pensions are worth.’
Read This is Money guides to tracking down old pensions and whether to merge old pension pots.
Our retirement columnist Steve Webb also has a guide to finding lost pensions published by LCP, where he is a partner.
Check your state pension forecast
You should get a state pension forecast well before retirement to ensure you are on course for the full rate, which is currently around £11,500 a year.
But you must actively claim the state pension when the time comes, and you can do this four months in advance. The Government will usually notify you, but not if it doesn’t have your current contact details.
‘It is the ideal time to decide whether you need to take it now or whether you can afford to defer it and get an increased amount later,’ says Morrissey.
‘People retiring under the new state pension system get an extra 1 per cent for every nine weeks they defer – that works out as an extra 5.8 per cent per year.
‘However, make sure that by deferring your state pension you aren’t losing entitlement to other benefits you otherwise would have qualified for.’
Watts-Lay says: ‘Some people don’t realise that you need a minimum of 35 years of National Insurance contributions to get the full state pension payment. This can be difficult for those who may have taken a career break or time off for child or elderly care.
‘It is possible to purchase NI credits to boost your state pension income. But after 5 April 2025, individuals will only be able to claim for six years of NI credit, so it may be worth considering filling any extra gaps in your record now.’
Check if you can get free credits, for example if you were a carer or unemployed during any NI gaps. Also, read more about the special state pension top-ups deal, which allows you to fill in gaps going back to 2006, but runs out on 5 April.
Can you claim pension credit?
If you are elderly and not well off, pension credit tops up weekly income to a minimum of £218.15 for single people and £332.95 for couples.
Pension credit also opens the door to a lot of additional help with household bills.
‘This benefit plays a vital role in topping up the incomes of the poorest pensioners but not enough people claim it,’ says Morrissey.
‘You can claim up to four months before reaching state pension age and if you are successful you will receive the income top up as well as valuable benefits such as the Winter Fuel Payment.’
Read our guide to pension credit here, and claim here.
Work our your household budget
You can work out your income, spending and bills using a budgeting tool. Many are available online, and you can find This is Money’s household budget calculator here.
You can create before and after budgets, factoring in the running costs of going to work like transport, food and clothing that you won’t need to bother with any more, but also new costs like days out, hobbies or higher energy bills.
Oliver Loughead, financial planner at RBC Brewin Dolphin, says: ‘ Try and establish early on what a happy retirement looks like for you. Budgeting is key. How much will you need to spend each month and has this changed?
‘Consider the various sources of income you will have available to meet this and work out if there will still be enough to meet your needs. It would be wise to also consider long term care planning here too, to cover all eventualities.’
Jonathan Watts-Lay: A person will have on average nine jobs in their lifetime, so could easily end up with many different pension pots
Figure out your tax situation
Your tax situation typically changes at retirement, which is something to bear in mind especially if you were employed and never considered the need to fill in a self-assessment return before.
Your finances when you move from work to retirement mid tax year might suddenly get complicated, so check if you need to file a tax return in future here.
If if you do, it is worth considering getting an accountant to do this task for you, perhaps as a one-off after the transition tax year to ensure you don’t make any innocent errors.
There are also many tax traps for the unwary when it comes to pensions, from ’emergency tax’ on your new pension income to the ‘money purchase annual allowance’ which limits tax relief when you start tapping a defined contribution pension pot for any amount over and above your 25 per cent tax free lump sum.
It’s especially important to research these matters if you don’t get financial advice when you start tapping your fund.
Read This is Money guides to finding a good accountant, and defending your pension from the taxman.
Time to think about downsizing?
This is a huge decision and not to be taken lightly, but it is worth thinking about what you will need or no longer require in terms of space and location after retirement.
‘If your children are now financially independent and you still live in your family home, it might be appropriate to consider if that is what you still want,’ says Loughead.
‘Could you downsize to something more manageable and affordable to run. You might even plan for later life and consider a bungalow for when climbing stairs becomes difficult.
‘You could use the surplus proceeds from the sale of your home to help boost your retirement pot, or even put towards a trip to enjoy in retirement.’
Discounts to help your money stretch further…
‘If you are retiring before state pension age then it’s worth checking to see what discounts are available to you to help your money stretch a bit further,’ says Morrissey.
‘The pensioner bus pass is available to all once they reach state pension age but depending on where you live there are other discounts available such as the 60+ London Oyster card if you are over 60. This gives free travel on buses, trains and other modes of travel around London.’
‘It’s well worth checking with your local council to see what can be available to you.’
Oliver Loughead: Ensure you have updated your will, power of attorney and nomination of death benefits for pensions
Get support from your workplace pension scheme
Workplace pension schemes offer a lot of free help that it is worth taking full advantage of as you determine what you will have to live on in old age.
Read our guide to what your employer and your work pension scheme might have available when you decide to retire, from basic information packs all the way to subsidised financial advice.
Pension Wise is a free Government backed guidance service for people with defined pension pots, that are invested to fund their old age.
You can have an hour-long phone or face-to-face appointment to talk through your options.
If you are under 50 or have a final salary (defined benefit) pension you can get free help from the related MoneyHelper service.
You should also consider paying for financial advice if you haven’t done so already at this important point in your life.
Loughead says: ‘A qualified financial adviser will have the knowledge and tools to help you plan a retirement that suits your needs. This is the start of the rest of your life and for many this could mean the next 30 or 40 years.
‘It’s important you make the most of the financial resources available to you.’
Leaving work – what benefits are you leaving behind?
You might lose valuable benefits when you leave your employer, says Morrissey.
If it provides private healthcare, you should check if you can continue your coverage with the insurer albeit at a higher price, she adds.
‘You may have used your work email address either as a primary or back up contact for some of your life admin – for instance log in details for subscriptions.
‘If that is the case, you will need to contact them to update your contact details so you don’t miss any important updates.’
To do list: Many people dream of retirement, but now is the time for some real hard thinking about how you are going to fill your days
Make or update your will
‘Ensure you have updated your will, power of attorney and nomination of death benefits for pensions,’ says Loughead.
‘Things change and it is important that following a lifetime of hard work, that the pot you have built up will be distributed in line with your wishes.’
Plan your days
Many people dream of the freedom of retirement, but now is the time for some real hard thinking about how you are going to fill your days.
You might have plenty of tasks and projects to do immediately after retirement, but think about your goals in the medium or longer term. Also, might you need to work again for financial reasons, or want to if it turns out you miss it?
‘The shift from working a full-time job to stopping completely is huge and might not suit everyone,’ says Morrissey.
‘Keeping your options open and thinking about activities such as volunteering, charity work, or even part-time work can play a huge part in a happy retirement.’
Watts-Lay says: ‘If someone is worried that they haven’t saved enough, it may be worth delaying retirement or continuing working part time.
‘This would enable them to make more pension contributions, and they would be able to take advantage of tax relief and employer contributions for longer to build up their savings.’
He notes data from the Office for National Statistics showed nearly 100,000 of retirees returned to work in the 12 months leading up to March 2023.