7 minute read
Retirement planning doesn’t often happen in one go. It tends to build quietly in the background while life carries on.
As you move closer to retirement, you may find your thoughts shifting from building wealth to how you could use it. This is often where things can feel more complex, as decisions around income, tax, and your longer-term priorities start to overlap in ways that are not always easy to untangle.
In our conversations with clients, a few patterns come up repeatedly. Here are some common mistakes to watch out for.
1. Leaving retirement planning too late
You might find that retirement only starts to feel real when it is close.
A pension statement, watching a colleague retire, or reaching a milestone birthday might prompt you to take a closer look at your finances.
However, starting at this point may limit your options. Time plays an important role in building wealth. The earlier you start, the more opportunity there is for your investments to grow, particularly within pensions and other tax efficient structures.
By starting your planning early, you have more time to think about what you want retirement to look like, and how your savings could support that. Then you can consider any big decisions that might need to be made.
2. Treating retirement as a single moment
Retirement is often talked about as a specific date. In reality, it is usually more of a transition that happens over time.
You might find that your working life changes gradually rather than suddenly stopping. You may choose to reduce your hours, or move into part time, consulting or advisory work after stepping away from full time employment.
Your spending can also shift across different stages of retirement. The early years might involve more travel or lifestyle spending, while later years may look quite different.
Thinking about retirement in phases, rather than as a single moment, can open up more flexible ways of structuring your income. It can also make the process feel more manageable emotionally as well as financially, as you are adjusting over time rather than making one big change all at once.
3. Assuming pensions should always be left untouched
You might have heard that pensions should be left invested for as long as possible.
This thinking is often linked to how pensions are treated for tax, and the role they can play in passing on wealth. Currently, pensions are not subject to inheritance tax (IHT), though this is set to change from April 2027. This has led some people to draw their retirement income from other assets first.
In practice, retirement income rarely works best when you treat your income sources separately. Your pensions, ISAs, savings, and other investments often work more effectively when they are considered together.
Proposed changes in tax rules and estate planning considerations, including those that may affect you from April 2027, are prompting a rethink of how pensions fit into wider financial plans.
Looking at how each part of your wealth interacts can help you make more balanced decisions, rather than treating your pension as something separate.
4. Overlooking tax when drawing retirement income
Even if you have built up savings across pensions, ISAs, and other accounts, the timing of your withdrawals can make a difference to how much tax you pay.
For example, taking a larger amount in a single year could push you into a higher tax band, while spreading withdrawals more gradually may lead to a different outcome.
5. Underestimating how long retirement may last
Improvements in life expectancy mean that retirement could last much longer than you might expect.
If you retire in your mid-sixties, it is increasingly common for retirement to span 25 years or more, according to data from the Office for National Statistics. This longer timeframe can shift your focus. It becomes less about covering immediate costs and more about how your finances will support you long-term.
You might also need to think about how your spending, health, and priorities could change over time, and how your plan can adapt alongside them.
6. Overlooking the long-term effect of inflation
Inflation often attracts attention when prices rise quickly, but its impact can also build quietly over time.
Even relatively modest increases can reduce your purchasing power significantly over a long retirement. An income that feels sufficient today may not stretch as far in the future.
Balancing stability with long-term growth is a key consideration as you get closer to retirement. You might want to consider how part of your investment portfolio could continue to grow over time, rather than focusing only on immediate income.
7. Not revisiting beneficiary nominations and estate planning
It is easy to complete beneficiary nominations once and not revisit them, but circumstances change over time. Marriage, divorce, new relationships, or changes in your family may all affect what you want to happen.
Reviewing these arrangements as you approach retirement can help ensure they still reflect your wishes and remain aligned with your wider plans.
Avoiding these retirement mistakes
While none of these mistakes are uncommon, most can be avoided or addressed with the right guidance and support before they have a lasting impact on your retirement plans.
What often makes the biggest difference is having a clear picture of where you are now, and a plan that brings all parts of your finances together. That means looking at your pensions, savings, investments, and estate planning together, rather than in isolation.
If you’d like to feel more confident about your retirement plans, you can have an informal chat with one of our independent advisers. To arrange a meeting at a time to suit you, visit https://fcadvice.co.uk/book-an-appointment/
Please note:
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is 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 (minimum of 5 years) and should fit in with your overall risk profile and financial circumstances.
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 Financial Conduct Authority does not regulate estate planning, tax planning, trusts, or Will writing.