Making the transition to retirement

How much money will I need in retirement?

It’s important to strike a balance between being able to afford the lifestyle you want while you’re still working, funding a comfortable retirement and passing on wealth. As well as having enough money to enjoy the present, it’s a good idea to plan for future obligations and external factors, such as inflation, tax increases, changing policy or healthcare costs.

Your primary focus should be on your own financial security. The Pensions UK trade body estimates that a one-person household would spend £43,900 a year to enjoy a comfortable retirement of financial freedom and some luxuries. This rises to £60,600 a year for a two-person household.

If you’re in the twilight years of your career, there’s still time to put your money to work in order to fund your retirement. On average, people in the UK who retire at 55 will depend on their pension savings for over 25 years. So even if you’re in your 50s, it could be worth investing some of your savings to help secure your finances once you’re done working.

How will I fund my retirement?

There are numerous ways to fund your retirement and having more than one source of income can be a good idea. Although not every option will be available to those nearing the end of their careers, there are still many valuable methods to consider.

It’s likely that you’ll already be saving for retirement if you’re employed by a company, which will usually have automatically enrolled you into a workplace pension when you joined. In a defined contribution (DC) scheme – which is the most common arrangement nowadays – employers will make a base contribution for qualifying employees, who can also contribute a percentage of their salary towards their pension. The minimum overall contribution is 8% of qualifying earnings, of which at least 3% is paid by the employer. You can also open a personal pension in addition to your workplace pension.

Rather than abruptly switching from working five days a week into retirement, many UK workers choose to phase out of their careers, reducing their working hours. There are advantages to winding down your career while keeping one foot in the door at work, such as maintaining a flow of income from employment, continuing to pay into a pension and helping to bridge the gap between employment and retirement.

It’s worth acknowledging that if you pull back from full-time employment, this could have ramifications for your salary and lower the amount that you are able to contribute towards your pension. The amount of your unused pension contribution allowance that you are able to carry forward into a tax year may also reduce if you cut back on your working hours.

The State Pension will go some way towards funding your retirement, although it’s important not to plan solely on this basis. For many people at £11,973 per year for 2025/26, it currently falls well short of funding Pensions UK's idea of a comfortable retirement and is unlikely to ever increase sufficiently to meet this threshold.

Not everyone will receive the full State Pension either – if you're a man born after April 5 1951 or a woman born after April 5 1953, you'll normally need 35 qualifying years of National Insurance contributions to receive the full amount. So if you’re on the cusp of retirement, don’t meet the conditions for the full State Pension and aren’t able to fill any gaps with voluntary contributions, it would be prudent to look to alternative sources of retirement income, such as via a personal pension.

While it’s an effective retirement savings tool for many investors, opening a Lifetime ISA (LISA) may not be an option for those who are about to retire. Opening a LISA is available to those aged 18 to 39 who reside in the UK or are crown servants. Contributions into a LISA – up to an annual allowance of £4,000 – benefit from a 25% government bonus, which is paid when you contribute. You can continue paying into a LISA until your 50th birthday.

You can access the money in your LISA to buy your first home worth up to the value of £450,000, and for retirement purposes once you’re 60, as well as if you’re terminally ill with less than 12 months to live. If you need to use it for reasons outside these criteria, you’ll have to pay a government withdrawal charge of 25%. So as a retirement option, it’s more likely to be of use to younger investors, given the age limits on LISA contributions.

Consider Income Investing

If you’re heading towards your latter years, your appetite for investment risk may not be as high as someone in their 20s. You have less time to build wealth, and fewer years to make up for any investment losses. At this stage of your life you might therefore need a larger focus on assets that pay income, rather than a portfolio that prioritises capital growth.

All J.P. Morgan Personal Investing investment products can be configured according to different investment styles and risk levels, and Income Investing might be worth considering for an individual who is transitioning into retirement. With this investment style, our investment team invests a lump sum from you into exchange traded funds (ETFs) that are likely to pay dividends, and actively manages your portfolio towards delivering a monthly payout. You can find out how much income you could generate through our Income Investing investment style here. Please note that our Income Investing style is currently only available via our Stocks and Shares ISA and our General Investment Account (GIA).

Investors with lower risk appetites can still make use of investment products to support them in retirement. You can hold a variety of different investment styles in the J.P. Morgan Personal Investing Stocks and Shares ISA across a range of risk levels. The lowest of these will favour exposure to bonds over more risky equities. A lower risk level is less likely to significantly reap the benefits of a bull market – a period of extended stock market growth and a general feeling of investor optimism – but it should be more resilient during a market downturn while also providing income from bonds.

You can invest every tax year in a Stocks and Shares ISA as part of your annual £20,000 ISA allowance. If you want to invest above this threshold, you could consider a GIA. Although you may pay tax on income or gains generated in a GIA, you can invest as much as you like every tax year.

Seek advice

Pivoting to retirement can be a daunting process, and it could be a good idea to speak to others who have gone through this transition. A free Pension Wise appointment to examine the options for taking money from your DC pension could be worth exploring.

It could also be sensible to seek financial advice. An adviser can support you in a number of ways.

Draw up a plan

A financial adviser can help you to draw up a plan for meeting your short-term and long-term spending needs. It’s important to have enough money to cover your daily expenses, along with emergency cash reserves to help with any unexpected outlay. Reducing your working hours, as well as potentially cutting your household income from two people to one person, could limit your ability to support your daily expenditure. An adviser can therefore be helpful when restructuring your household finances.

Advisers can also build forecasts so that you can assess whether you are able to meet more substantial expenses. This could be for the purpose of enjoying your retirement, such as through the purchase of property or funding the cost of travelling. There may also be more urgent spending requirements. Leaving work may mean that you lose access to private healthcare, and the cost of certain treatments can be substantial.

Understanding risk appetite

Planning for inflation is often part of an adviser’s approach to forecasting, while understanding a client’s risk appetite and capacity for risk is also an important part of the process. J.P. Morgan Personal Investing wealth experts use questionnaires as a starting point to a wider discussion with prospective clients, which help to understand their attitudes towards risk and volatility. This may lead to clients having investments set to different risk levels, which can help to generate returns while also helping to limit your exposure to the impact of a market fall.

Navigate tax rules

A financial adviser can also help you navigate tax rules, which can be complicated. An adviser can help you understand the tax efficiencies available to you by using a combination of investment products, such as an ISA and a pension. They can also support you through the process of leaving a legacy for your loved ones, advising you how to potentially reduce the amount of Inheritance Tax that they will have to pay by helping you think about how you can pass on wealth while you are still alive, such as via gifting.

J.P. Morgan Personal Investing provides a paid ‘restricted advice’ service, which means that we will only make investment recommendations on the products and services that we offer. We do not provide tax advice.