Article Should you re-evaluate your retirement plans?

The rising cost of living is affecting many of us. And as the total we spend on energy bills, supermarket shops and other necessities increases, this may have changed how much you've been able to save each month. These uncertain times may have also affected some investments, meaning the value of your pension or other invested savings might have gone up and down more than usual.

With this in mind – if you're getting closer to retirement age, you might be wondering whether retiring is the best option for you right now. Even if you're in a comfortable position, some recent changes to pension allowances – and increasing interest rates on savings accounts – might make it beneficial to keep working.

Add this to the rising minimum age to access both the State Pension and private pensions, there are a number of reasons to make us think twice about when we should retire. These factors affect us all in different ways – so should you be rethinking your retirement plans? 

Should I change my retirement plans?

If you’re wondering whether you should postpone your retirement, save more or adjust your long-term goals, here are a few key questions to ask yourself.

Have my goals for retirement changed?

Perhaps you've always had a retirement age in mind. Is that still your goal? Sometimes when people get closer to their retirement age, they realise they’re not yet ready to give up work. If you feel this is you, reassess your priorities for retirement. What sort of lifestyle do you want once you stop working? Will continuing to work allow you to take on new plans, for example, renovating your home, or save up to travel the world? By revisiting these goals, you might need to change your plans and adjust your budget. Try our picture your best life tool to help you visualise this.

How much will I need to retire?

Once you’ve pictured your future self, you can think about how much money you’ll need to sustain this. As a rough estimate, most people need between about 50 and 70% of the income they had when they were working to have a comfortable retirement. But what does ‘comfortable’ mean and how much would that lifestyle cost?

The Pension and Lifetime Savings Association (PLSA) suggests a single person would need an income of £12,800 a year to fund a minimum standard of living in retirement. Meanwhile a comfortable retirement which gives more financial freedom, and some luxuries would require £37,300 a year.¹ Bear in mind, these figures could change with inflation.

Remember that the age at which you can access both the State Pension and your personal pension is rising. The current age to access a personal pension is 55, rising to 57 in 2028.² The State Pension age is currently 66, rising to age 67 progressively between 2026 and 2028.³ So if you’re planning to retire earlier than these ages, you’ll need enough money to cover your lifestyle before you can access these benefits. 

Try using an online pension calculator like this one from Money Helper to work out how long your money might last, based on the current size of your pension pot.

Have I saved enough for retirement?

Once you’ve reassessed your plans and used a retirement calculator, you should have a better idea if you’re on track for the retirement lifestyle you want. This could be key to helping you decide whether you need to change your retirement plans.

If you don’t think you’ve saved enough money, you could consider reviewing your monthly pension contributions to check if they’re at the right level for what you need.  Remember, if you have a workplace pension and continue working without taking any income from your pension, your pension will likely benefit from employer contributions and government tax relief.  Find out more about workplace pensions in our workplace pension guide.

Are there any benefits to staying in work?

Staying in work for longer could have different benefits, depending on your situation. For example, if you work part-time or have lower earnings, working for longer may allow you to build up more qualifying years of National Insurance contributions which might entitle you to a larger State Pension. It could also give you more time to add to your pension pot and benefit from money from employer contributions and government tax relief. The value of any tax relief will depend on individual circumstances.

If you're a higher earner, the increased annual allowance might be an encouraging reason to keep working. The allowance has gone up from £40,000 to £60,000 a year for the 2023/24 tax year, meaning you can save more tax-free into your pension each year.⁴ The government will also scrap the lifetime allowance from April 2024. This means there’ll be no limit on what you can save across your pension pots in your lifetime without paying extra in tax when you come to withdraw it.

If you’ve already started taking retirement benefits

If you’ve already started taking retirement benefits and have stopped working, recent changes might make it more appealing to go back into work. As of April 6 2023, you can now pay in up to £10,000 each tax year into a pension once you’ve already started withdrawing your pension savings.⁵ This is called the Money Purchase Annual Allowance – the allowance is an increase from the £4,000 limit in the 2022/23 tax year.⁵

I want to change my retirement plans – what's next?

If you’ve decided your plans need a rethink, you might be wondering what the next steps should be. Here are some ideas to help you get started.

Think about taking action

If you want to change your plans or your target retirement date, acting as early as possible could put you on the right path to achieving your new goals. For example, if you decide you need to save more, you’ll want as much time as possible to build up your pension pot and give your money a chance to potentially grow. The value of an investment can fall as well as rise and isn’t guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.

Consider taking advice

We know that retirement planning might feel overwhelming. If you can afford it, speaking to a professional financial adviser could help by showing you whether you’re on track for the retirement you want. If not, they can help you decide what more you need to do to achieve this. You can find an adviser through the MoneyHelper website. There's likely to be a cost for financial advice.

Make the most of free resources to help you 

• Taking the time to create a written plan could give you more clarity about your priorities, retirement preparations and aspirations. Read our article about how to create a written retirement plan.
• You can visualise your financial future with our Picture your best life tool or read our article for tips on how to plan for retirement.
• You could also visit the government-backed website MoneyHelper for free and impartial guidance. Or Pension Wise, a service from MoneyHelper, is available for over-50s. While these services offer guidance rather than personalised advice, they are free resources which could be a useful starting point if paid-for financial advice is out of your reach.  

The best plans change as your life does

If you’re concerned about the impact of the rising cost of living on your retirement plans, you’re not alone. Why not take a step back and look at the big picture when it comes to your money and lifestyle? This could help you see where you can amend your plans – and be more in control of your future.