When you first began working, retirement may have seemed like a distant milestone. Now, after decades of contributing to your savings and investments for the future, you might be thinking about finishing work in 2025.
This is a significant step, and it marks the beginning of an exciting new chapter of your life. However, if you want to achieve your dream lifestyle, there are some important preparations you may need to make before retiring.
Here are five important steps to take if you want to retire in 2025.
1. Decide what you want your retirement to look like
Before you review your financial situation, it may be useful to consider what you want your retirement lifestyle to look like.
For instance, will you continue living in your current home or perhaps downsize? Do you want to travel or even move abroad? What kind of social life do you want to have?
Answering these questions could help you build a picture of your dream lifestyle. It’s important to understand what you want your retirement to look like so you can determine how much it’s likely to cost and whether you can afford it.
2. Create a retirement budget
Now that you’ve decided what you want your lifestyle to look like, you can create a detailed retirement budget. List all your expenses including:
- Mortgage or rent payments
- Utility bills
- Travel expenses, including the cost of running a car
- Eating out and socialising
- Supporting loved ones financially.
Using this information, you can get an idea of what level of income you will need to draw from your pensions and other savings each year to fund your lifestyle. Having a clear budget could also prevent you from overspending during retirement.
3. Review your pensions and other assets
Once you have a clear budget that outlines your projected spending in retirement, it may be useful to review your current financial position.
Consider how much wealth you hold in your:
- Pensions
- ISAs
- General Investment Account (GIA)
- Cash savings accounts
- Property
You may also want to check for any “lost” pension pots. It’s very common for savers to lose track of pensions when changing employer.
Indeed, the Pensions and Lifetime Savings Association (PLSA) reports that there are now an estimated 3.3 million lost pots on the UK, with an average value of £9,470.
Using the pension tracing service or contacting old employers could help you find these lost savings and add them to your retirement pot, giving you a valuable boost before you retire in 2025.
Reviewing your current assets in this way should allow you to determine how long you’re likely to be able to fund your desired lifestyle for based on your current savings.
We can use cashflow planning to help you make accurate forecasts, taking important factors such as inflation into account.
In some cases, you might find that you have more than enough to fund your retirement and you’re ready to finish working in 2025. On the other hand, you may have less than you hoped in your savings.
Fortunately, you still have time to increase the size of your pot and achieve your dream of retiring in 2025.
4. Make the most of your Annual Allowance
If you plan to retire in the next year, you may want to increase your pension contributions now.
This is because you automatically receive 20% tax relief on your contributions, and you may be able to claim another 20% or 25% through self-assessment if you’re a higher- or additional-rate taxpayer.
Crucially, your “Annual Allowance” limits the tax-efficient contributions you can make each year. In 2024/25, this stands at £60,000 or 100% of your earnings, whichever is lower.
Using your full Annual Allowance each year could help you maximise the amount of tax relief you benefit from, so you can grow your retirement pot faster.
If you’ve already used your Annual Allowance, you may consider increasing other tax-efficient savings, such as your ISAs. In 2024/25, you can contribute up to £20,000 across all your ISAs.
5. Check your State Pension entitlement
While your personal pensions may provide a significant portion of your retirement income, your State Pension is still important.
In 2024/25, the full new State Pension amount is £221.20 a week, and this will increase to £230.25 a week. The “triple lock” guarantee means that the payments typically increase each year by the higher of:
- Inflation
- Average wage growth
- 2.5%
You also receive the payments for the rest of your life, so the State Pension may be a useful supplement to income from your other pensions and savings.
However, you only receive the full amount if you have 35 “qualifying years” of National Insurance contributions (NICs). If you have fewer than 10 qualifying years, you won’t receive anything at all.
A qualifying year is any year in which you:
- Were working and paying NICs
- Made voluntary NICs
- Received NI credits – if you were caring for a child under the age of 12, for example.
It may be useful to check your State Pension entitlement and see whether you will receive the full amount. If you don’t have 35 qualifying years, you can fill gaps in your NI record by paying voluntary contributions.
Normally, you can only make contributions for the past six years. However, the government introduced a temporary transitional arrangement when moving to the new State Pension, which allows you to fill gaps all the way back to 6 April 2006.
The government previously extended the deadline for this arrangement several times, but it will end on 5 April 2025. As such, it may be important to check your NI record and fill any gaps as soon as possible to ensure you receive the full new State Pension amount.
Get in touch
We can support you with these crucial steps so you can make your dream of retiring in 2025 a reality.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of current HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate cashflow planning or tax planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.