5 years from retirement: your planning checklist

While approaching retirement can feel exciting, there are aspects to finally stopping work that may feel daunting. Making your money last may well be one of them.

The good news is that if you have five years until retirement, there are still practical steps you can take to strengthen your financial position and feel more confident about taking your pension money.

Here are six steps to help you get retirement ready.

1. Work out your likely income and expenses in retirement

Understanding what retirement might look like financially is essential.

Start by estimating your expected income. This could include:

• State Pension

• workplace and personal pensions

• any savings or investments

You can use our pension calculator to find out how much pension you could get.

Then think about your likely retirement spending, such as daily living costs, travel, hobbies and potential care needs later in life.

Many people find their retirement costs change over time, so it could help to take into account different stages (early active years versus later years).

2. Address any shortfalls in your pension pot

If your estimates show a gap between what you’ll have and what you’ll need, there are several ways to help close it:

• save more in the next five years

• delay retirement to give your pension more time to grow

• downsize your home to release some of its value or move to an area where property prices are lower

Even small changes can make a difference over five years, especially when combined.

3. Consider consolidating your pensions

If you’ve worked for a number of employers, you’re likely to have several workplace pensions. Consolidating your pensions – which means transferring all your pensions to one provider – could be helpful. Having just one pension will give you a clearer view of all your retirement savings and it’s easier to manage.

You could also lower your costs if you consolidate your pensions with a lower-cost provider.

You could miss out on valuable benefits if you transfer your pensions, so it’s very important to make sure it’s right for you. If you have a defined benefit¹ – or ‘final salary’ – pension, which pays a guaranteed income, transferring is unlikely to be suitable. Check with a financial adviser if you’re not sure.

4. Increase your pension contributions if you can

Even with only five years to go before you retire, paying more money into your pension – if you can afford it – can make a difference to your retirement.

This is especially true if your employer matches your contributions. With auto-enrolment, many employers pay in 3% of your salary and you pay in 5%².

But if you increase your contributions to 7%, for example, they might also pay in 7%. On a salary of £50,000, this could mean an extra £3,000 a year going into your pension, according to our calculations. 

You can add lump sums if you have a self-invested personal pension (SIPP). So if you get a bonus or inheritance, you could put it towards setting yourself up for a more secure financial future. 

Most people can pay up to 100% of their gross (pre-tax) relevant earnings³ into their pension each tax year, up to a maximum of £60,000. This is known as your annual allowance. It covers all your private and workplace pensions (not the State Pension) and includes employer and third-party contributions, as well as your own personal contributions. 

It may be possible to contribute more than your annual allowance by carrying forward unused annual allowances from the previous three tax years.

5. Make sure your investments still suit your attitude to risk

As retirement gets closer, it’s important to check that your investments still match how much risk you’re comfortable taking.

If you have too many high-risk investments, a sudden market drop could affect your pension just when you’re about to rely on it.

A higher proportion of shares in a portfolio generally indicates a higher level of risk. While shares offer higher potential returns, they also come with greater swings in prices.

But being too cautious too soon could limit your pension’s potential for growth. 

Bonds⁴ are typically viewed as lower risk as they’re more stable. But they offer lower potential returns. 

A balanced portfolio that reflects your attitude to risk can help you feel more confident as retirement approaches.

6. Decide how you’ll take an income from your pensions

There are several different ways to take your pension money in retirement.

The main ways to access your retirement pension money are:

• Use flexible income drawdown – you decide how much income to withdraw and when. And you can change the amount whenever you want to.

• Take individual lump sums – you take small lump sums when you need them. They’ll be a mix of up to 25% tax-free cash (up to the £268,275 lifetime limit) and 75% taxable income. This is also known as UFPLS or uncrystallised funds pension lump sum.

• Buy an annuity – lifetime annuities pay out a guaranteed income for the rest of your life. Fixed-term annuities pay out a guaranteed income for a set period.

• A mixture of the above – you might want an annuity to cover essential expenses like bills, and use flexible drawdown for discretionary spending, such as holidays, for example.

You can’t always switch to another option if you change your mind. So it’s a good idea to start thinking about what might be right for you. Each option has its pros and cons, so it’s worth understanding them well before you retire.

Five years might not seem like long, but it’s still enough time to take control and make meaningful improvements to your retirement plans. By reviewing your investments, boosting contributions where possible, and planning how you’ll use your pension, you can move closer to the retirement you want – with greater confidence and peace of mind.

¹ Defined benefit (DB) pensions pay a guaranteed income depending on your final or average salary and are funded by employers. In general, DB pensions are usually not suitable for consolidation. 

² The auto-enrolment minimum contribution for the tax year 2026-27 is 8% of your salary between £6,420 and £50,270. The 8% comprises 5% from you (including tax relief) and 3% from your employer. 

³ 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.

⁴ 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.

Investment risk information

Investing gives your money the opportunity to grow over time, but market movements mean values can rise and fall along the way.

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.

Your transfer will be sent to us as cash or shares (Vanguard funds only). During the transfer period any cash will not be invested so you could miss out on any increase in the value of your investments should the market rise.

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.

Important information

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Vanguard only gives information on products and services and does not give investment advice based on individual circumstances. If you have any questions related to your investment decision or the suitability or appropriateness for you of the product(s) described, please contact your financial adviser.

This is designed for use by, and is directed only at, persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information is general in nature and does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.

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