60 is very much a landmark age when it comes to retirement planning. Entering your seventh decade is a big prompt for you to start thinking about the time when you will stop working.
As you move closer to retirement, it becomes increasingly imperative to avoid simple errors that could interfere with your wider financial plans. These could adversely affect your income, and even impact when you can retire.
Discover five of the most common pension mistakes, and how you can easily avoid them to secure your wealth for the future.
1. Not having a retirement income plan in place
It may seem obvious, but by the time you turn 60, you need to ensure you have an income plan in place that covers your retirement years.
You may be tempted to think that there is nothing to plan for, and that you have done all the hard work, both literally and in terms of accruing your retirement fund.
If anything, however, your plans for your retirement may well be more important than the plans you have now that are designed to build your wealth ready for it.
There are several key considerations you will need to think about. These will include:
- When you want to retire
- What you want to do once you stop working
- How much income you will need.
In fact, planning becomes all the more important. You will need to balance the obvious need not to run out of money with drawing enough income from your pension fund and other assets to ensure you can live comfortably and reach your lifestyle objectives.
2. Using your pension fund for non-retirement purposes
By definition, a pension is designed to provide a retirement income once you stop working. A big mistake to avoid is drawing from your fund for other purposes.
Even though you can access your retirement pot from age 55 (rising to 57 from 2028), there is no reason why you have to if you are still working. Indeed, while you are working full-time, your priority will likely be accumulation.
A common mistake many people make around the age of 60 is to see the 25% tax-free lump sum you can draw from your fund as separate from their retirement income. This then raises the temptation to take it before your actual retirement for non-income reasons, such as a big holiday or home improvements.
It is important not to overlook the fact that you will be paying Income Tax on your pension withdrawals if your income exceeds the Personal Allowance (£12,570 in 2025/26), aside from that tax-free lump sum.
So, using your lump sum tactically as part of your income strategy can help mitigate the tax you have to pay, especially if your income requirements could result in you moving into a higher tax bracket.
Your pension is for retirement, and it can be sensible to prioritise it for that purpose.
3. Following the wrong investment strategy
As you get close to retirement, it is important to review how your fund is invested and ensure you are still comfortable with the level of risk you are taking.
Unless you plan to use your entire fund to buy an annuity, which will provide you with a guaranteed income, usually for the rest of your life, your pension fund will typically remain invested while you draw from it.
As a result, it may be worth checking that you are still pursuing an appropriate investment strategy that takes sufficient risk to grow your pot in retirement. But crucially, you also want to know that it avoids overly excessive volatility and the potential for greater short-term losses than you are prepared to accept.
A key factor in your investment strategy will be to appreciate how long your fund may need to last.
According to the Office for National Statistics (ONS) life expectancy calculator, a man currently aged 60 has an average life expectancy of 84. For a woman of the same age, the equivalent expectancy is 87.
However, the man has a 25% chance of living to age 92, and the woman has the same chance of living to age 95.
This means that if you are in good health, there is a decent chance that your retirement could last for 30 years or even longer.
As a result, the longer you are able to leave money invested in your pension and continue to pay into it, the longer these funds will likely last. In turn, this can ensure that you will have enough to fund your entire retirement.
4. Not appreciating the effect of inflation on your retirement income
A common mistake many people make is to assume that the income they need in the early years of retirement will remain unchanged.
Your lifestyle is likely to change during your retirement years. In the period immediately after you stop working, you may be very active as you take the opportunity to enjoy overseas travel while you are still relatively fit. Later, however, you may slow down and enjoy a less active lifestyle. Then, in your later years, your expenses may increase, as care fees could become an issue.
As well as not reflecting your changing circumstances, this strategy also does not take into account the effect of inflation. The increasing cost of goods and services over time can affect how much your money will be worth in real terms.
For example, according to the Bank of England, an item that cost £100 just five years ago would now cost £125 based on UK inflation rates over that period.
Over an extended period, increasing prices can have a significant impact on how far your retirement income will go.
If your income does not increase by at least the same amount as inflation, this will reduce the purchasing power of your money and could affect your monthly budgeting.
5. Retiring too soon
As you have read, 60 is a key psychological age in your journey to retirement, as it marks the start of the decade in which you are likely to retire.
When it comes to actually deciding a date for yourself, it is important to ensure that you are truly comfortable with the target age you select.
Retiring fully is a big step. While it will certainly free up time, it will also mean that you no longer have the mental stimulation of working every day, nor the social interaction that can come from a busy workplace.
As a result, you need to ensure that you have plans in place to keep you occupied and active. Importantly, these plans should extend beyond the first year or so, during which retirement will still be a novelty and maybe even resemble an extended holiday.
One option to consider is to “phase” your retirement. Gradually reducing your working hours, perhaps through a consultancy position, can help you acclimatise to stopping work entirely.
It can also help from a financial perspective. You will put less strain on your retirement fund, as you will still be earning an income, and you can continue to make contributions into your pension pot, too. Just bear in mind that if you access your pension, your threshold for making tax-efficient contributions may be decreased.
On this, as with all the issues you have read about in this article, we would recommend working with a financial planner to ensure that the decisions you take suit your objectives and personal circumstances.
Get in touch
If you would like to discuss your own retirement plans, then please do get in touch with us at DBL Asset Management.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
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.
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.
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.