Once you reach your 60s, retirement is likely just around the corner – or perhaps already underway. While it’s a time to enjoy the wealth you’ve spent so long building up, you’ll want to ensure it lasts your retirement, can cover unexpected costs or even leave a legacy for future generations.
There are some key things to consider when investing later in life, such as shifting your asset allocation to lower-risk investments, deciding how you want to draw your pension money when you retire and estate planning.
Here are five ways to make the most out of investing in your 60s and beyond.
Consider lower-risk investing
If you don’t quite have the savings you hoped for at this stage in life, you may be tempted to move your money into slightly riskier investments in the hopes of getting higher returns. However, unless you’re planning to keep your money invested for several more decades – perhaps you’re planning to pass it on to future generations – taking on more risk could put your hard-earned savings in jeopardy.
As you approach retirement, it’s generally a good idea to start to shift some of your investment portfolio from higher-risk assets like shares to lower-risk assets like bonds1. This helps protect your savings from stock market downturns and could provide a more stable income stream.
Shares have historically offered higher returns than bonds over the long term but with greater swings in prices. Bonds typically offer lower but more stable returns over the long term. The exact mix of shares and bonds that’s right for you will depend on your goals and how you feel about investment risk. Read more about choosing the right investments for your risk appetite.
If you’re not confident doing this yourself, our Target Retirement funds and Managed Personal Pension will automatically shift your portfolio into lower-risk investments as you get closer to retirement.
Give your pension a final boost
Even though you may be nearing or at retirement, there may still be ways to give your pension a final boost. Checking how much you’ve saved into your pension so far can help you work out whether you’re on track to meet your retirement goals. If your pension is smaller than you hoped it would be, consider increasing how much you pay in each month or adding a lump sum. If you have a workplace pension, your employer might offer to pay in more if you increase your own contributions too, usually up to a certain percentage.
One of the reasons why paying into a pension is so valuable is that personal pension contributions benefit from tax relief. This means a £100 contribution only costs £80 if you’re a basic-rate taxpayer, £60 if you’re a higher-rate taxpayer and £55 if you’re an additional-rate taxpayer. You can continue receiving tax relief up until age 75. Most people can get tax relief on pension contributions of up to 100% of gross relevant earnings, capped at £60,0002. In some circumstances, you might be able to make pension contributions over your annual allowance and still benefit from tax relief. This is because you can ‘carry forward’ unused allowances from the previous three tax years. Read more about carry forward rules.
Another way to accelerate your pension is to track down any old pots you may have forgotten about. Over the course of your working life, it’s easy to lose track of different pension pots, especially if you've changed jobs frequently. The government has a free pension tracing service which can help you find the contact details for workplace and personal pensions. Recovering your lost pensions could provide a significant boost to your retirement savings.
Delaying your retirement can also help to boost your pension. This is because you’ll have more time to keep contributing and a shorter period to fund your living expenses in retirement. Working longer will also allow your pension to grow further.
If you are already enjoying retirement, keep in mind the Money Purchase Annual Allowance (MPAA). Once you start taking money from a defined contribution pension3, the amount you can invest in your pension while still getting tax relief is limited to £10,000 a year and this can’t be carried forward.
Think about how you’ll access your pension
There are several options to choose from when it comes to accessing your pension, so consider what suits your individual circumstances and preferences.
With flexible income drawdown, you can take draw up to 25% of your pension as tax-free cash (capped at £268,275) and leave the rest invested. You can then take the income you need and change this amount whenever you want to. You can also take a series of individual lump sums (called ‘UFPLS’), where 25% of each lump sum is tax-free and 75% is taxable.
Lump sums differ to annuities, which provide guaranteed income. While they may provide more certainty, once set up you can’t change your mind and you can’t increase or decrease the amount of income to suit your needs. You may want to reduce investment risk further if you’re planning to buy an annuity. This can help to prevent your pension pot declining in value just before you need to use it to buy the annuity.
It’s also possible to use a combination of options, which adds further flexibility. Find out more about withdrawing your pension money.
Don’t forget other ways of investing
Outside of your pension, there are still other ways to fund your retirement, which can also be tax efficient. With an individual savings account (ISA) you can withdraw as much money as you like without paying tax. You won’t pay income tax on the dividends4 or interest you receive, and you won’t pay capital gains tax (CGT) on any profits you make when selling investments. You can save up to £20,000 in ISAs each tax year5.
If you have investments outside an ISA, such as in a General Account, you can make profits of up to £3,000 without paying CGT and receive dividends of up to £500 without paying dividend tax (2025-26 tax year). You can also receive up to £1,000 of tax-free interest, depending on your income tax band6.
The way you draw income from your investment and savings pots could make a big difference to your overall tax bill in retirement. For example, taking income and capital from General Accounts before ISAs and pensions may help you preserve the tax wrapper benefits for as long as possible. However, what’s right for you will depend on your individual circumstances, so we’d suggest speaking to a financial adviser first.
Consider how you want to pass on your assets
By planning ahead, you can have peace of mind that your loved ones are cared for and it may also be possible to reduce the amount of inheritance tax (IHT) owed. ISAs and General Accounts form part of your taxable estate and may be liable for IHT, unless they are inherited by your spouse or civil partner. Currently, pensions usually sit outside your estate for IHT purposes, but the government is consulting on making unused pension savings subject to IHT from April 2027, which may influence how you want to pass on your assets.
Giving away assets during your lifetime can reduce the value of your estate and, consequently, the IHT due. There are a range of gifts that may be exempt from IHT, including gifts of up to £3,000 each tax year, regular gifts from surplus income and potentially exempt transfers. To learn about gifting and other ways to help manage IHT, read our article on how to reduce your inheritance tax bill.
It’s also important to have a will and an expression of wish form for your pension – and that you keep these up to date. This will ensure your money and other assets go to the people and causes you care about when you die.
1 Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.
2 For more on what counts as ‘relevant earnings’ that can earn tax relief when used to fund a pension, see the HMRC Pensions Tax Manual. Your annual allowance might be lower than £60,000 if you have a high income or you’ve already flexibly accessed your pension pot. To work out if you have a reduced (tapered) annual allowance, see HMRC’s website. If you’ve flexibly accessed your pension, you can work out what your alternative annual allowance is here.
3 A defined contribution pension is a pension scheme that builds up a ‘pot’ of money to pay you a retirement income. They’re sometimes called money purchase pensions and can be a workplace pension scheme set up by your employer or a personal pension scheme set up by you.
4 Dividends are the payments some companies make to their shareholders out of their profits.
5 £20,000 is the most you can currently invest in ISAs in a tax year. The limit covers all types of ISAs.
6 For more information on tax-free interest see Gov.uk.
Investment risk information
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
The eligibility to invest in either ISA or Junior ISA depends on individual circumstances and all tax rules may change in future.
Eligibility to invest in a Vanguard Personal Pension depends on your individual circumstances. Please be aware that pension and tax rules may change in the future and the value of investments can go down as well as up, so you might get back less than you invested. You cannot usually access your pension savings or make any withdrawals until the age of 55, rising to the age of 57 in 2028.
If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.
The Vanguard Target Retirement Funds may invest in Exchange Traded Fund (ETF) shares.
ETF shares can be bought or sold only through a broker. Investing in ETFs entails stockbroker commission and a bid- offer spread which should be considered fully before investing.
Any tax reliefs referred to are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.
For further information on risks please see the “Risk Factors” section of the prospectus on our website.
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