Should you only have a year or two to go until retirement, there is very little you can do to undo the consequences of decisions you have made over your working life. Ultimately, most of the money in your pension pot will have been built up over your working life — however, topping up your pension contributions in the final years leading up to your retirement can boost your pension pot. In the years leading up to your retirement, get independent financial advice on how to boost your tax-free pension lump sum. Saving extra money into your pension through Additional Voluntary Contributions (AVCS) could enhance your tax-free pension lump sum — though this will depend on your circumstances.
For those who don’t have an adequate pension by the time they retire, downsizing to a smaller property could be their only way to raise the money they need for retirement.
Understand exactly what you’re getting into though. It can be very stressful to move house in your elder years — house moves require a lot of energy and organisation. Should you be serious about downsizing, do so before or shortly after you retire as you are more likely to have the energy for it then. Make sure the area you’re moving to has accessible and good public transport, a strong social network, and is close to friends and family. Otherwise you could become very isolated and lonely in retirement.
It’s very important to have a financial plan for any money you raise from downsizing — and not to blow it all within a few years of retirement. Set aside a certain amount of disposable income to fund your lifestyle but address other financial priorities too — such as having adequate private health insurance, keeping enough money for nursing home care, and leaving an inheritance.
Remember, if downsizing isn’t for you and you’re cash-poor, you could raise some tax-free income in retirement by renting out a room in your home under the rent-a-room scheme.
To help make ends meet, it’s important to plan your retirement spending carefully. “Retirement spending goes in three phrases,” said Bell. “When people first leave work, they often spend a lot on ‘miscellaneous’ purchases such as trips abroad, or things which they hadn’t bought before. They allow money to leak away. People should budget for, and control, miscellaneous spending, without being too frugal.”
In the second phrase of retirement spending, spending tends to plateau — because it is at this stage that people age and typically stop travelling abroad, according to Bell.
“In the third phrase, spending goes up again as people often have to pay for care,” said Bell. “So plan your spending carefully. Enjoy your money though — there’s no point leaving a lot of it behind you.”