What to do 10 years, 5 years and 2 years from retirement

Summary (finance-focused retirement planning at 10 / 5 / 2 years pre-retirement)

Disclosures

• Mentions “not regulated financial advice” in reference to Pension Wise.
• Presenter recommends considering professional advice, but the transcript does not provide a formal “not financial advice” disclaimer from the host.

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10 years from retirement — setup, contributions, and consolidation

Key checklist items

• State pension forecast (UK)

  • Use gov.uk to check your forecast.
  • Common eligibility guideline: at least 35 years of qualifying National Insurance (NI) contributions for the full state pension.
  • If gaps exist (career breaks, worked abroad), you can make up gaps via voluntary contributions.
  • Check state pension age, because it has been rising and may change the timing of benefits.

• Know your retirement “balance” and required spending

  • Gather all savings/investments and pension pots:
    • workplace pensions, private pensions
    • ISAs, savings accounts
    • defined benefit pensions: estimate income, start age, and whether income increases over time.
  • Estimate retirement spending by bucketing into:
    1. Essential (housing costs, council tax, bills)
    2. Discretionary (hobbies, moderate holidays)
    3. Luxury (one-off big items like long-haul travel, gifts)
  • Stress-test timeline/health:
    • Fidelity research claim: people underestimate life expectancy significantly, which can cause unsustainable withdrawals early in retirement.
  • Use calculators (Fidelity has some) to gauge whether you’re broadly on track.

“Supercharge” savings (tax-efficient)

• Aim to increase contributions, especially because many people can save more at this stage (kids leaving home, mortgage shrinking).
• Suggested actions:
  • Topping up pensions, contributing to ISAs, or strategic use of bonuses.
  • Pension contributions up to the annual allowance receive tax relief.
  • For higher/additional rate taxpayers, government “tops up” contributions by roughly 40–45% (as stated).
  • At ~10 years out, pensions may be closer to access (reducing perceived sacrifice).

Maximize workplace pension benefits

• Employer matching: example given conceptually—if you add 3%, employer adds 3% (wording: “extra say 3% … put an extra 3% in two”).
• Consider salary sacrifice into pension for tax efficiency.
  • Mentions changes coming in 2029, but expects it to remain tax-efficient.
• Notes a tax “cliff edge” around £100,000 income and that salary sacrifice down toward that threshold can be a “huge boost.”

Review and possibly consolidate investments/pots

• Ensure investment risk matches:
  • risk appetite
  • time horizon
  • updated retirement date
• Consolidation can improve:
  • clarity/visibility of total assets
  • coherence of investment strategy
  • potential fee reduction
• Caution: check for exit penalties or loss of “special benefits” before consolidating.

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5 years from retirement — access strategy, glide paths, and tax planning

Contributions and windfalls

• Continue maximizing contributions.
• Possible sources of one-offs: inheritance, or downsizing property proceeds.
• Carry forward rules for pensions:
  • You can typically carry forward unused annual allowance from the past three tax years to enable a larger one-off contribution if you receive windfalls.

Pension access options (and investment implications)

• Key message: understand access routes ~5 years out (even if you don’t decide yet).
• Options mentioned:
  • Lump sums
  • Flexi-access drawdown
  • Buying an annuity
  • Potential combinations
• Investment/risk logic differs by route:
  • If buying an annuity: consider derisking significantly so the pension value doesn’t bounce near the purchase date.
  • If using drawdown: keep money invested for potentially 30–40 years (or longer) and therefore don’t derisk as much.

Workplace pension “lifestyling” / glide path

• Many workplace pensions reduce risk gradually as retirement approaches (lifestyle/glide path).
• Caveats:
  • Only works if the retirement date chosen is correct.
  • If retirement date changed, you could end up taking too much or too little risk.
• Also notes:
  • Glide paths were originally based on using the pension for an annuity—if you plan drawdown, check how you’re actually invested.

Tax planning around the 25% tax-free allowance

• Typically up to 25% of pension can be taken tax-free (within limits).
• Caution:
  • Withdrawals beyond the 25% become taxed as income.
  • A large single-year withdrawal could push you into higher tax brackets.
• Suggested tax-efficiency tactics (framework-level):
  • Blend pension income with ISA income (ISAs described as tax-free in retirement).
  • Stagger pension withdrawals over multiple tax years.

Government guidance (Pension Wise) + advice caution

• Pension Wise:
  • Free government service
  • For age 50+
  • Provides impartial guidance on retirement options
  • Not regulated financial advice
• When to seek paid advice (host’s personal view):
  • If circumstances are complex or pot is large, it may be beneficial.
  • Mentions the value of modeling (income rising/falling, multiple sources), and that it can be hard without an expert.

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2 years from retirement — preserve capital, bucket income, and legacy planning

Switch from wealth accumulation to wealth preservation

• Focus: reduce exposure of early-retirement spending to excessive stock market risk.
• “Bucketing” approach to income sources:
  • Short-term bucket (first few years spending): very low risk assets, “probably cash”
  • Medium-term bucket: medium levels of risk
  • Longer-term bucket: can take more risk for better longer-term returns

Refine spending/budget for retirement life

• Use the same three-bucket spending approach (essential/discretionary/luxury) to decide what should be supported by:
  • guaranteed income (examples given)
    • state pension + annuity
  • Invested income (drawdown) to fund the rest
• Notes retirement spending pattern:
  • spending often higher in early years
  • may be lower in middle
  • can tick back up later due to later life care costs
• Interactions of income sources:
  • If essentials are covered by guaranteed income, investments can be allowed to continue working, and the retiree can take only the risk needed.

Longer-term planning and estate/health decisions

• Update legacy and legal documents:
  • review will
  • review pension beneficiary nominations
  • set up lasting power of attorney if mental capacity could be affected
• Inheritance tax planning:
  • check whether estate may be above the inheritance tax threshold
  • consider financial gifts
  • timing note: earlier gifts may be more likely to be free from inheritance tax via the 7-year rule
• Later-life care considerations:
  • Care costs can wipe out savings for a meaningful minority.
  • Options referenced:
    • possibly moving into council-funded care (if appropriate)
    • “financial products” such as care annuities
    • may require selling a property
  • Emphasizes having family conversations early because decisions can affect what can be passed on.

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Key numbers / explicit figures mentioned

• 35 years NI contributions for full state pension (UK guideline)
• Tax relief impact: ~40–45% for higher/additional rate taxpayers (as stated)
• Salary sacrifice tax “cliff edge” around £100,000
• Pension windfall planning:
  • carry forward from past 3 tax years
• Pension access:
  • up to 25% of pension can be tax-free (within limits)
• Drawdown horizon mentioned:
  • potentially 30–40 years (or longer)
• Legacy planning:
  • inheritance tax “7-year rule”

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Presenters / sources

• Ed Monk (host)
• Mariana Hunt (Fidelity)