6 tips for creating certainty in retirement


Retirement should be a milestone that’s celebrated. You’ve got more time on your hands to indulge in the things you enjoy. But that doesn’t mean it’s entirely stress-free either.

Without your usual wage coming in, you may worry about how you’ll afford to live the lifestyle you want. Spending too much too soon is a real risk in retirement. But so is being overly frugal and missing out on opportunities you’ve been looking forward to. It can mean that a retirement that promised much falls short despite having the funds to meet aspirations.

According to research, almost half of the next generation of pensioners are unsure if they have enough money saved:

  • 56% of people under 55 are confident their pension is on track
  • This compares to 85% of those over 55

Financial uncertainty in retirement can have a huge impact on your wellbeing and what you achieve. However, there are steps you can take to boost your confidence.

1. Understand your dependable income

Naturally, running out of money is a common concern among retirees. When asked what they were most concerned about, it’s the issue that came out top, according to figures from Aegon. Four in ten people are worried they won’t have enough money in retirement.

The first thing to do here is to assess what level of income you can rely on throughout retirement. You may have several different streams of income that are dependable.

For many, the foundation of retirement income is the State Pension. Assuming you have a full record of National Insurance contributions, the State Pension will be £168.60 per week in 2019/20. This equates to £8,767.20 annually. Whilst it’s unlikely this will be enough to live your desired lifestyle, it can provide some certainty.

If you have a Defined Benefit pension, this will provide a guaranteed income for life. Often this income is linked to inflation too, protecting your spending power. The amount you receive will depend on the benefit of the scheme and the number of years you’ve been a member. You should receive an annual statement explaining the income you can expect at retirement.

If you have a Defined Contribution pension you also have the opportunity to create a guaranteed income through purchasing an Annuity.

2. Review Defined Contribution pensions

If you hold a Defined Contribution pension, it’s important to review how much it holds. How do you know you’re on track if you’re unsure of contribution levels or performance.

With a Defined Contribution pension, both you and your employer will make contributions. You’ll also benefit from tax relief and the money will be invested, hopefully delivering returns over the long term. You should receive an annual statement that explains how your pension has performed and offer a projected value at the point of retirement. This projected figure is useful, but it’s important to keep in mind that it’s not guaranteed.

To understand the retirement lifestyle a Defined Contribution pension will deliver, you need to understand your goal. This should be linked to the lifestyle you want to achieve, the point you want to retire, and your life expectancy. Calculating this can be difficult, but we’re here to offer help.

3. Get to grips with your options with a Defined Contribution pension

A Defined Contribution pension doesn’t automatically provide you with a guaranteed income. Getting to grips with what your options are, and what this means for your retirement income, is essential.

As mentioned above, purchasing an Annuity is the only way to create a guaranteed income from a Defined Contribution pension. This will pay out a defined amount each month, providing you with certainty. In some cases, it’s possible to link an Annuity to inflation too.

However, more retirees are choosing Flexi-Access Drawdown. This allows you to access your pension flexibly, with your savings remaining invested. It gives your savings a chance to grow further and puts you in control. But it can mean you’re uncertain about the level of income you can sustainably afford to take and how investment performance will have an impact.

We’re here to help you understand what your options are when accessing a Defined Contribution pension. Our goal is to provide you with the confidence needed to enjoy your retirement.

4. Look at how other assets could create an income

If you’re worried about pension savings falling short, remember your other assets can also be used to fund retirement. You could, for instance, use savings, investments or property to supplement pensions. Pensions are often the focus of retirement planning but other assets play a role too. Even if your pension should be enough to support your retirement lifestyle, knowing you have assets to fall back on can provide you with peace of mind.

5. Plan for the unexpected

Even the best-laid plans can hit obstacles. When you were working, you probably took steps to ensure your financial security, such as building up an emergency fund or taking out an income protection policy. When you’re retired, it’s no different. Planning for the unexpected can help give you peace of mind.

Financial planning can help you answer questions like:

  • What will happen if investments underperform?
  • Would if an unexpected cost affects my retirement lifestyle?
  • Would I be financially secure if my partner passed away?

With a better understanding of the impact unexpected events could have, you’re in a position to take steps to minimise the impact.

6. Make a plan for care

The Aegon research found that becoming mentally and physically ill is as big a concern for today’s retirees as running out of money. Two in five identified being diagnosed with Alzheimer’s or dementia as a concern. It might not be something you want to plan for, but doing so can ease the uncertainty around it.

Care, whether moving into a care home or offering you support within in your own home, can be expensive. The cost can run into tens of thousands of pounds a year. As a result, creating a plan can help you set money aside in case it’s necessary. It can also give you peace of mind that should care be required, it’s more likely to align with your wishes.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.