How and when to retire and how to survive on a pension

The state pension age is currently based on gender and date of birth

How and when you should retire

More than half of people over the age of 55 have no idea when they will be able to afford to retire, a study has revealed.

When you give up the nine to five grind depends on individual circumstances – what savings you have, the bills you have to pay and the retirement lifestyle you want.

See also: How pensioners are spending their cash

See also: Could equity release be the answer to your retirement wishes?

Here are the questions you need to ask yourself to work out if you are financially fit for retirement.

And for those of you who are not quite ready there's a six-point action plan to help you along.

When will I get my State pension and how much will I get?

The state pension age is currently based on gender and date of birth. By 2020, it will be 66 for men and women, rising to 67 and beyond from 2026. Find out your retirement date and pension by getting a state pension forecast at gov.uk/check-state-pension or call 0345 3000 168.

This should be your starting point as your state pension is the basis of your retirement income.

What income will I get from my workplace or private pensions?

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Getty

Contact your workplace pension provider and any other firms you have savings with for details of the type of pension you have, fund size and your options on when and how you access them.

Check if you have any valuable annuity rate or income guarantees, if you have to access funds at a certain age for them to be valid and if there are any exit fees if you take pensions earlier than your nominated retirement date.

Andrew Tully, of Retirement Advantage, says: "Don't simply accept the pension income from the firm you've saved up with. Always shop around as you could boost it by as much as 30% by comparing quotes. You can also save hundreds of pounds in fees by comparing income drawdown plans too."

How can I track down any older pensions?

The Government offers a free pension tracing service at gov.uk/find-pension-contact-details .

Anything else I need to consider?

Check if you have anything that could boost your income, such as ISA or other savings, investments or Premium Bonds.

How much debt do I have?

Credits: Daily Record

Daily Record

Debt is expensive and will put a big dent in your pension income.

Be realistic about how much you are paying out and how long it will take to clear your mortgage, credit cards or loans – and if it's viable from your pension income.

Andrew Hagger from Moneycomms.co.uk, says: "A £2,000 balance on a credit card, at a typical 18.9% and paying the minimum 2% each month, would take 26 years to clear and cost £2,457 in interest. That could prove a big drain on a retirement income."

Can I afford my basic bills?

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Getty

Make a budget of your likely expenditure in retirement. As well as your regular bills, such as energy, council tax and food, make sure you include annual expenses such as car insurance, MOT, Christmas and birthday gifts, gym membership and pet insurance.

Also, consider the risk of rising inflation. You need to ensure your pension income rises each year in line with inflation.

What sort of lifestyle do I want in retirement?

No one wants to be a JAM – just about managing – with no money to enjoy socialising or holidays. Don't forget to ensure you have a bit extra to cover these costs too.

If you are considering an income drawdown – taking cash in chunks, rather than an income for life – think about how long your pot of retirement cash may need to last.

Do the figures add up?

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Getty

Is your total retirement income sufficient to pay your regular bills with a slush fund for unexpected bills and to fund a few treats?

If yes, then great, your finances are fit for retirement. If not, don't panic.

Andrew Tully says: "You can always consider working longer, or perhaps slowing down a bit by working part-time to boost your income."

And follow our six-step plan below to get your finances on track.

Six steps to get your finances ready for retirement

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Getty

  1. Tackle debt. Clear it to reduce your monthly bills so you can afford to retire sooner. Ditch expensive credit card debt and switch to a 0% balance transfer deal. Consider a money transfer credit card to clear overdrafts or a personal loan to clear numerous debts.
  2. Try overpaying on your mortgage. Even paying just £50 a month extra will help reduce the term and interest you pay to get it cleared quicker and more cheaply.
  3. Don't pay too much for your bills. Compare the market and switch to better deals on insurances. Also, ensure you are on the right energy tariff. Every penny you save can be used to clear debt or build savings.
  4. Top up your pension. Put a bit more away to build a bigger pot.
  5. Start a savings fund. While you're still earning, push yourself. Start small, it all adds up and will give you more freedom on when you can afford to retire.
  6. Think about downsizing. Moving to a smaller, cheaper property could help you clear your mortgage earlier or to release some money to help boost your retirement income.
  7. If you can't get the books to balance and you are property rich and cash poor you could consider unlocking some of the cash tied up in your home via an equity release plan. It's controversial and not the right move for everyone, but it works for some.

How we spend our pensions

How we spend our pensions



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