Retiring in 2025? Here are 3 steps to take today

As 2024 draws to a close, you’re likely looking forwards to the year ahead and thinking about goals you’d like to achieve in 2025.

If one of those goals is to retire, you might already feel excited about the arrival of this next chapter. But before you can put your feet up and relax, there are plenty of financial steps to take first.

Keep reading to discover three helpful steps to take now if you’re planning to retire in 2025.

1. Find out the total value of your pensions, investments, and savings

Your savings, investments, and pensions are likely to make up the lion’s share of your income once you stop working.

While you might have up-to-date valuations on some of these, you’re unlikely to have calculated the total value of your retirement fund.

Your fund might be made up of:

• Any workplace pensions in your name
• Your self-invested personal pension (SIPP)
• Individual Savings Accounts (ISAs) you hold
• Cash savings
• Shares you hold outside of an ISA
• Properties, especially those that may generate a continued income, such as buy-to-lets.

Working out the combined value of these has several benefits, including:

• Ensuring you’re on track to retire as comfortably as you want to
• Knowing whether you can afford to continue supporting family members, if you do so already, once you’ve retired
• Assessing your options for decumulation (more on this later)
• Working out how much tax you might pay once you start drawing an income from these sources.

If you aren’t sure where to begin when working out the overall value of your pensions, savings, and investments, speak to your financial planner for further guidance.

2. Ensure you’re eligible for the highest possible State Pension payments

In truth, the State Pension on its own is unlikely to be able to fund your desired lifestyle. But when used to supplement your personal savings and investments, it can be a truly life-changing amount of money to receive for the rest of your life.

Today, those who are eligible for the full, new State Pension receive £221.20 a week, equalling £11,541.90 a year. This is rising to £230.25 a week in April 2025, increasing its annual value by around £470.

However, the amount you’ll receive depends on the number of “qualifying years” on your National Insurance (NI) record. If you have 35 or more qualifying years, you’ll be eligible for the full, new State Pension; if you have fewer, you may receive lower payments.

If you’re missing qualifying years, you can pay voluntary National Insurance contributions (NICs) for some previous tax years. These could provide significant value for money by boosting your lifelong payments once you reach State Pension Age.

Usually, you can only buy NICs for the previous six tax years. But until April 2025, there’s an opportunity to pay voluntary NICs for the years between 2006 and 2016.

You can check your State Pension forecast on the government website. This tells you how much you’re on track to receive, and how much it might cost to pay voluntary NICs.

Doing this today gives you ample time to decide whether voluntary NICs will be worth it for you, and to make payments as far back as 2006 before the new tax year begins on 6 April 2025.

3. Establish a tax-efficient decumulation strategy

Once you know how much you’ll receive in State Pension payments, plus the value of your private pensions and other savings, you can start to carve out a clear plan for decumulation.

“Decumulation” describes drawing an income from all these sources after you stop working. It can be a nerve-wracking experience for those who are used to saving into these pots rather than seeing their value diminish – but having a plan may still your nerves.

When you start thinking about decumulation, tax should be at the forefront of your mind. With several tax-efficient thresholds and allowances frozen, and the recent Budget bringing news of tax increases, you’ll want to avoid paying more tax than necessary.

As you’re forming your decumulation plan, be aware that:

• You may pay Income Tax on private pension withdrawals, the State Pension, and other forms of income such as payments from rental properties.
• Liquidating non-ISA shares, disposing of business assets, and selling properties that aren’t your main home, could all incur Capital Gains Tax (CGT).
• Creating a bespoke retirement plan with a qualified financial planner could help you avoid the eventuality of overpaying tax and let you keep more of your hard-earned wealth.

It’s often best to think about decumulation far in advance of your retirement date, so drawing up these plans now could mean you’re prepared to retire comfortably in 2025.

Get in touch

Start your retirement journey today by emailing enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate 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.

Workplace pensions are regulated by The Pension Regulator.

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.

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.