Don't make these six common pension mistakes before you retire

You may be looking forward to hanging up your briefcase in a year or so. Or perhaps you’re beginning to wonder when you might be able to afford to retire.

Whenever you do retire, make sure you don’t rush into any financial decisions beforehand.

Whatever you do as you start to retire will affect your income for the rest of your life. Keep these points in mind and you should be able to protect your money going forward:

According to retirement specialists, Wealth at Work, the rising cost of living has meant that one in 10 (10 percent) over 55s in full-time employment have withdrawn some of their pension savings earlier than they originally intended to supplement their income.

Also, nearly a third say they might have to withdraw savings early, in the future.

You should do everything you can to avoid dipping into your pension pot early. It should be seen as a last resort because even taking a few thousand out of your pension early can mean a big drop in your income later on.

It could either mean that you have to work longer or you live on less in retirement.

Ideally, if you’re in your fifties or early sixties and looking for a long and prosperous retirement, you should be adding as much of your money as possible to your retirement fund.

Look for side-earners to supplement your current income if necessary. We have a list of rather interesting money-earners here for retired or soon-to-be-retired people.

Pension managers tend to move the investments in your pension to less risky (and therefore less rewarding) products when you come closer to retirement.

It’s called ‘Lifestyling’ your pension to make sure that there are no nasty shocks when you come to use the pot of cash in there when you retire.

Lifestyling pensions used to make sense when people tended to buy an annuity in retirement, but now many people access their pensions using income drawdown (kind of using your pension pot as a bank account), so it doesn’t work so well.

In fact, it could be better for your pension to stay invested in riskier (and more rewarding) stocks and shares long into retirement, to give the money the potential to keep growing. It’s worth speaking to your pension provider to find out what the pension is invested in and if it’s making enough money for you

Did you know there were £26.6billion in lost pensions in the UK in 2022? Some of that money could be yours.

Loads of people have pensions from old jobs that they had forgotten about or lost sight of. It’s a really good idea to trace these and, possibly, move them into one pension, if that’s feasible.

It’s not always a good idea to consolidate pensions as there might be extra benefits attached to one or more of the pensions, but it is definitely worth having those lost pots anyway.

Use the free pension-finder service, Gretel.co.uk, which will search the pension companies for you and then let you know if they have found anything. It might take a few days or weeks for them to trace these old pensions, but it’s worth the wait.

Find out here how to trace lost or forgotten pensions and what to do with them once you’ve found them.

Your retirement is likely to last a good long time. Average retirements now last 20 to 30 years, which is quite a stretch to pay for if you’re not planning on working anymore.

Research from Wealth at Work has found that more than half of workers say they get advice about their pensions from family, friends or colleagues.

Sometimes they don’t even bother asking anyone at all. Certainly, very few speak to a professional like their pension provider, employer, a regulated financial adviser, which means many people go into retirement without much of a clue about how they can maximise their savings.

It’s really important to make the very most of the money you have invested in pensions and other investments. When you come up to retiring, it’s worth paying for some good advice. You can get one free session with Pensionwise once you are 50 or over, which you should grab with both hands because…well…it’s free.

But it’s also worth paying for advice from a proper financial advisor, even if it’s just as a one-off, to go through your investments, make suggestions as to whether you should do drawdown or take an annuity, or both, and look at other aspects of your finances, such as life insurance, making a will, cutting down inheritance tax and making provision for care.

If you don’t personally know a good financial advisor, there are step-by-step instructions here on how to find a good, independent financial advisor here including how to get free sessions.

According to investment platform Hargreaves Lansdown (HL), people often worry that they’ve left retirement planning too late, although, with a bit of help, they can usually build up their pot even if they start late.

HL’s research has found that nearly a quarter of workers wished they had started investing sooner. Admittedly, it is best to start putting money away as early as possible as the longer you leave your money in an investment the better it will grow.

However, even making small increases to your contributions in your 50s or 60s can make a big difference to what you end up with. If your employer offers to match your contribution increase, that can give you an even bigger pot.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: “It’s never too late to make a difference. Calculations using HL’s pension calculator show that someone aged 45 earning £34,000 per year with a pension worth £60,000 could have amassed as much as £160,000 by the age of 68 if they continue contributing at auto-enrolment minimum levels.

“However, if they boosted their contribution by around £50 per month, they would see that grow to £180,000. Boosting it by £100 per month could see it climb even further up to around £198,000.”

Pension scams are cruel and sadly happen all the time. The Pensions Regulator estimates that £2.5trillion worth of pension wealth in the UK is ‘accessible’ to fraudsters, which means we all have to be on our guard.

If you’re planning on moving your retirement savings to a different investment company, make sure it’s registered with the FCA (the Financial Conduct Authority). That will reduce the likelihood that you’re dealing with scammers.

Also, if the worst happens and the fund collapses, it means that your money (or much of it) will be covered by the Financial Services Compensation Scheme (FSCS). The FSCS cover quite a lot of financial products and it’s useful to check their website to see when you could be compensated for.

Also, keep yourself up to speed with the latest investment opportunities and protect yourself from the latest scams by signing up for our investment newsletter here.