Your five-step pre-retirement checklist

There comes a point when retirement stops feeling abstract.

It might be five years before you retire, it might be closer. The question changes from “am I saving enough?”, to “will what I’ve built actually support the life I want?”

Focus shifts. You’re no longer just building wealth; you’re preparing to use it.

That transition is where most of the important decisions sit. A checklist can help – though not in the usual sense of ticking off tasks. What matters is understanding how each decision fits into your wider plan.

Here’s a handy, five-step pre-retirement checklist to follow:

Step 1. Understand what retirement will actually cost

Before looking at pensions or investments, you need a clear sense of what your life in retirement might cost. Not just in theory, but in practical, day-to-day terms.

A useful starting point is the framework developed by the Pensions and Lifetime Savings Association (PLSA), which sets out three broad levels of retirement lifestyle in the UK:

• A minimum lifestyle covers essential spending, with limited room for extras.
• A moderate lifestyle allows for more flexibility, including a car and occasional travel.
• A comfortable lifestyle supports greater freedom, with more frequent holidays, dining out and discretionary spending.

From there, you can begin to map your own expected spending.

What matters is not perfect accuracy. It’s having a grounded estimate. Without that, it’s difficult to judge whether your current savings are sufficient.

A simple way to structure this:

Step 2. Know your total retirement situation

Once you have a sense of what retirement might cost, the next step is to understand what your existing assets can deliver.

For most people, retirement income comes from several sources:

• The State Pension;
• Workplace and personal pensions;
• ISAs and other investments, and occasionally,
• Property or other assets.

Individually, each may appear manageable. Together, they form the foundation of your retirement income.

Below is a structured way to review this:

At this stage, the goal is not precision – it’s visibility.

Many people reach their 50s without a clear, consolidated view of their finances. That makes planning difficult.

Step 3. Turn your situation into a projected income

Knowing what you have is one step. Understanding what income it could produce is another.

A pension pot on its own does not tell you much. What matters is the income it can generate, and how sustainable that income is over time.

As a broad illustration (not a guarantee):

• A £300,000 pension might support around £12,000 per year.
• A £500,000 pension might support around £20,000 per year.

This is often based on a withdrawal rate of around 4%, though the right level will depend on your circumstances, investment approach, and how long the income needs to last.

When you combine this with the State Pension (currently just under £12,000 per year, subject to eligibility and future changes), a clearer picture begins to form.

But it is rarely straightforward. Income depends on:

• When you retire.
• How your investments perform.
• How withdrawals are structured.
• How long you live.

This is why many financial planners use cash flow modelling at this stage – not to predict exact outcomes, but to test how different scenarios might affect your income over time. Any modelling, calculators or illustrations will rely on assumptions and cannot predict future returns. Outcomes can be better or worse than shown.

Step 4. Understand your retirement income options

How you take money from your pension is one of the most important decisions in retirement planning. It‘s also one of the least understood.

There’s no single way to take a pension. How you do it will shape your income, your tax position, and how long your savings last. Most people use a combination of approaches, but it helps to understand the three core options:

Drawdown (flexible income)

Your pension remains invested and you withdraw income as needed.

Pros:

• Flexible income you can adjust over time.
• Remaining funds stay invested for growth potential.
• Can be tax-efficient if managed carefully.

Cons:

• Income is not guaranteed.
• Market falls can reduce your pot.
• Risk of running out of money if withdrawals are too high.

Annuities (guaranteed income)

You exchange all or part of your pension for a secure income for life.

Pros:

• Guaranteed income for life.
• Removes investment risk.
• Provides certainty for essential household spending.

Cons:

• Limited flexibility once set up.
• No access to capital.
• Income may not keep pace with inflation (depending on type).

Lump sums

You withdraw cash directly from your pension.

Pros:

• Immediate access to capital.
• 25% typically tax-free.
• Useful for one-off expenses or debt repayment.

Cons:

• Additional withdrawals taxed as income.
• Can push you into higher tax bands.
• Reduces future income potential.
• Risk of running out of money if withdrawals are too high.

What happens to your pension when you die?

These options also differ in how pension wealth can be passed on after you die.

In general, drawdown offers the greatest flexibility, allowing remaining funds to be passed to beneficiaries in a tax-efficient way. Annuities can provide continued income to a spouse if this is built in at the outset. Taking lump sums moves money outside the pension, where different tax rules apply.

Understanding these differences is an important part of retirement planning, particularly where protecting your family’s financial position is a priority.

Drawdown – any remaining funds in drawdown can usually be passed on to beneficiaries. They may be able to keep the money invested, draw an income, or take lump sums. In many cases, this can be done in a tax-efficient way, particularly if death occurs before age 75.

Annuities – income from an annuity will usually stop when you die unless you selected additional features at the outset, such as a spouse’s pension or a guaranteed payment period. Including these options provides continued support, but typically reduces the income you receive at the start.

Lump sums – once withdrawn, the money forms part of your estate. This means it may be subject to inheritance tax and does not benefit from the same flexibility or tax treatment as funds left within a pension. Though, from April 2027, most unused pension funds and death benefits will be included within the value of an individual’s estate for inheritance tax purposes (rules around inheritance tax and pensions have been subject to consultation and may change in future).

In practice, many retirement plans combine these approaches. For example, using guaranteed income to cover essentials, with drawdown providing flexibility. The key is structure.

These decisions are difficult to optimise in isolation. Small changes in timing or structure can have a lasting impact on your income.

This is where financial planning becomes critical. It’s designing a strategy that supports your income needs for the rest of your life.

Step 5. Turn your plan into action

By this point, you should understand:

• What retirement might cost.
• The size of your retirement pot.
• What your assets could provide.
• Your retirement income options.

The next step is to close the gap between where you are today and where you need to be. That usually comes down to a small number of high-impact decisions:

Sense-check your retirement date
Retirement timing is one of the most powerful levers available. For some, this can materially improve the sustainability of their income. Delaying retirement can:

• Give you longer to build up your retirement contributions.
• Allow investments more time to grow.
• Reduce the number of years your pension needs to fund your retirement needs.

Review your contributions while you still can
The final years of your career are often your highest earning. That makes them one of the most effective times to boost pension contributions. One final big push can make all the difference.

Reduce financial commitments
Entering retirement with lower fixed costs increases flexibility and gives you more options when structuring withdrawals. This might include:

• Paying down outstanding mortgage debt.
• Simplifying regular outgoings.

Align your pension and savings to your income needs
As retirement approaches, your pension and savings need to refocus to supporting your future income needs, not just growth. That often involves:

• Building more stability and less risk into your investment portfolio.
• Increasing the amount of cash and cash-like investments you hold.

Plan withdrawals with tax in mind
How you take income can be as important as how much you take. Spreading withdrawals across tax years, using allowances efficiently, and coordinating income sources can reduce unnecessary tax.

Build a confident retirement plan with a financial planner

The years leading up to retirement are often the most important. Many of the decisions you make during this time cannot easily be undone.

When you take income; how much you withdraw; how your investments are structured. Get these right, and your finances can support you for decades. Get them wrong, and the impact can be difficult to reverse.

Retire with the confidence that you have a plan that’s been thought through, tested, and built around your circumstances – a plan built around you and your needs, by an expert financial planner.

If you choose to work with a financial planner, they can help you understand the trade-offs involved in different retirement income strategies. However, it cannot remove investment risk or guarantee outcomes.

A financial planner can help you:

• Understand how your income will be delivered over time.
• Structure your pensions and investments to support that income.
• Manage tax efficiently as you begin to draw from your savings.
• Adapt your plan as markets and circumstances change.

For many people, the value is not just in improving your retirement, but in removing the worry of making a mistake so that you can move into retirement knowing your plan is built to support the life you want.

Book your retirement planning consultation today →