The Five-Year Retirement Countdown: What Should You Be Doing Now?

Five years might sound like plenty of time. When it comes to retirement planning, however, it can pass surprisingly quickly.

This is often the point when retirement begins to feel real. You may have a rough idea of when you would like to finish work, but perhaps you are less certain about how much income you will have, where all your pensions are or whether your savings will support the retirement you imagine.

The good news is that five years gives you time to make meaningful changes. You do not need every detail settled immediately, but the sooner you understand your position, the more choices you are likely to have.

Start by finding out exactly what you have

Before making decisions, build a complete picture of your retirement savings.

Most people change employers several times during their working life. This can leave them with a collection of workplace pensions, some of which may have been forgotten or left with old contact details.

Look through old paperwork, emails and payslips, and contact previous employers or pension providers where necessary. The Government’s free Pension Tracing Service can help you find the contact details for an old workplace or personal pension scheme, although it will not tell you whether you have a pension or how much it is worth.

For each pension, find out:

• Its current value.
• Whether it is a defined benefit or defined contribution pension.
• The retirement date recorded by the scheme.
• The charges and current investment choices.
• Whether it includes guarantees or other valuable benefits.
• What income or benefits it is currently projected to provide.

You should also check your State Pension forecast. This will show when you are expected to receive it, how much you may receive and whether there are gaps in your National Insurance record.

Bringing pensions together can sometimes make them easier to manage, but consolidation is not automatically the right answer. Transferring could mean giving up guarantees, protected benefits or favourable terms, so each pension needs to be checked carefully first.

Work out what retirement might actually cost

A pension value on a statement does not tell you whether you can afford to retire. What matters is the income it could provide and how that compares with your future spending.

Begin by thinking about the retirement you genuinely want. Will you travel more? Help children or grandchildren? Replace the car? Spend money improving your home? You may no longer have commuting costs or pension contributions, but other expenses could increase when you have more free time.

It is sensible to separate essential spending from the things that would make retirement more enjoyable. Your basic budget might include household bills, food, insurance and transport. You can then add holidays, hobbies, meals out, gifts and other discretionary spending.

Remember to allow for irregular costs too. Boilers need replacing, cars require repairs and homes need ongoing maintenance. Inflation also means that £1,000 will not buy as much in ten or twenty years as it does today.

Once you have an estimated budget, compare it with your expected income from:

• Workplace and personal pensions.
• The State Pension.
• Savings and ISAs.
• Property or other investments.
• Part-time work or self-employment.
• Any income your spouse or partner will receive.

This can reveal whether you are broadly on course or whether there is a gap that needs attention.

Use your final working years carefully

If your projected income falls short, five years still gives you time to improve the position.

You may be able to increase your pension contributions, particularly if your employer offers additional matching contributions. Pension tax relief can also make contributions an attractive way to build retirement savings, although allowances and limits apply.

Even relatively small monthly increases could make a difference when combined with tax relief and potential investment growth. A bonus, pay rise or money previously used for another expense could also be redirected towards retirement without putting as much pressure on your normal household budget.

Debt deserves attention at this stage as well. Entering retirement with fewer monthly repayments can reduce the income you need, but this does not mean using every available penny to clear the mortgage immediately.

High-interest credit cards and loans may need dealing with first. At the same time, it is important to retain accessible emergency savings. Locking all your spare money into a pension or using it to repay the mortgage could leave you short if an unexpected expense arises.

The right approach may involve gradually reducing debt while continuing to build your pension and cash reserves.

Check whether your investments still suit the plan

As retirement approaches, it is common to assume that every pension should be moved into safer investments. The reality is more nuanced.

The appropriate level of risk depends partly on how and when you intend to use the money. Someone planning to buy an annuity or withdraw a large amount shortly after retiring may need a different investment approach from someone intending to remain invested through pension drawdown for another twenty years or more.

Some pension schemes automatically move savings into lower-risk investments as the selected retirement date approaches. This is sometimes called “lifestyling”. It may be helpful, but the strategy might have been designed around assumptions that no longer match your plans.

Remaining too heavily invested in higher-risk assets could expose your pension to a significant fall shortly before withdrawals begin. Moving too much into cash, however, could reduce its opportunity for growth and leave the money more vulnerable to inflation over a long retirement.

Rather than making a sudden change because retirement is getting closer, review what you currently hold, why you hold it and whether it supports the way you expect to take your benefits.

Do not take pension benefits simply because you can

Most people can currently access private pension benefits from age 55, although the normal minimum pension age is due to rise to 57 from 6 April 2028. Some people may have a protected pension age or different scheme rules.

Being able to access a pension does not necessarily mean that you should take it immediately.

Defined contribution pensions can normally be used in several ways. You may be able to buy a guaranteed income through an annuity, use pension drawdown, take a series of lump sums or combine different options. Defined benefit pensions work differently and may provide a guaranteed income based on the scheme’s rules.

The timing matters. Taking benefits while you are still receiving a salary could create a larger Income Tax bill. Flexibly taking taxable money from a defined contribution pension can also restrict the amount that can subsequently be contributed to certain pensions with tax relief.

Your State Pension may begin at a different time from your workplace or personal pensions. If you retire before State Pension age, you will need to decide how to fund the years in between without putting too much pressure on your savings.

This is why the decision should be planned around your overall income rather than one pension at a time.

A simple five-year retirement timetable

Your plan will be personal, but a broad countdown could look like this:

• Five years before retirement: Trace old pensions, check your State Pension forecast and create an initial retirement budget.
• Three to four years before: Review contributions, debts, cash savings and how your pensions are invested.
• Around two years before: Refine your likely retirement date and test whether you could live comfortably on your planned income.
• During the final year: Decide how benefits will be taken, consider the tax position and contact providers to understand their timescales.
• As retirement begins: Keep accessible savings available and review the plan regularly rather than treating it as finished.

You may also want to update pension beneficiary nominations and review your will, insurance and wider estate planning. These can easily be overlooked when most of the attention is placed on retirement income.

Turning a retirement date into a workable plan

Retirement planning is about more than choosing the day you finish work. It means understanding what you own, what income it could provide and whether that income will support the life you want.

Five years gives you valuable time to fill gaps, reduce unnecessary debt and make more informed decisions about your pensions. It also allows you to consider alternatives, such as working fewer hours before stopping completely or delaying retirement slightly if that would make a meaningful difference.

At Westfield Financial Solutions, we can help you bring the different parts of your retirement plan together. By reviewing your pensions, investments, expected income and future spending, you can approach retirement with a clearer idea of what is possible and what you may need to do next.

The value of investments can fall as well as rise, and you may get back less than you invest. Tax treatment depends on individual circumstances and may change in the future.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Follow us