Mikeala Purdue
Many people spend years preparing for retirement, carefully building pension savings and investments with the goal of achieving financial freedom.
However, retirement is not the end of the planning journey. In reality, some of the most important financial decisions are often made after retirement.
Whether it is managing income sustainably, navigating tax rules, dealing with an inheritance, reviewing investment strategy or considering the impact of inheritance tax, ongoing financial planning can help ensure your money continues to work effectively for you and your family.
One of the most significant changes to pension planning in recent years will take effect from 6 April 2027.
From this date, unused pension funds are due to be included within an individual’s estate for inheritance tax (IHT) purposes.
Historically, pensions have been an effective estate planning tool because pension savings could often be passed to beneficiaries outside of the estate for IHT purposes.
Following the proposed changes, pension funds may become subject to IHT where an estate exceeds the available allowances and, depending on the circumstances, beneficiaries could also face income tax when accessing inherited pension benefits.
As a result, many existing estate plans may need reviewing.
This does not necessarily mean pension savings should be spent first or that pensions are no longer valuable planning tools.
Instead, retirement planning will need to balance several competing factors, including:
There is no one-size-fits-all solution.
The most appropriate strategy will depend on your personal circumstances, objectives and family situation.
Since the introduction of Pension Freedoms in 2015, many retirees have chosen flexi-access drawdown rather than purchasing an annuity.
Flexi-access drawdown provides flexibility and control, allowing you to choose when and how much income to take from your pension.
However, careful planning is essential to ensure your pension savings remain sustainable throughout retirement.
One of the key risks faced by retirees is known as sequencing risk.
Sequencing risk occurs when withdrawals are taken during periods of poor investment performance. When markets fall, more units of an investment need to be sold to generate the same level of income.
This can have a lasting impact because when markets subsequently recover, there is less capital remaining to benefit from growth.
The risk can be particularly significant during the early years of retirement or when large lump sums are withdrawn at a single point in time.
Many retirees naturally focus on the amount of income they require, but the timing of withdrawals can also be important.
Taking a regular monthly income can help smooth the impact of market fluctuations compared with taking a large annual withdrawal.
By spreading withdrawals throughout the year, different amounts are sold at different market levels, reducing reliance on market conditions at a single point in time.
For many people, monthly withdrawals also mirror their previous salary pattern, making budgeting and cashflow management easier.
Whilst this does not remove investment risk, it can help make retirement income planning more predictable.
One of the less frequently discussed challenges of retirement is not financial, but behavioural.
The move from guaranteed pension incomes towards flexi-access drawdown has given retirees greater flexibility and control over their finances.
However, it has also introduced a new concern commonly referred to as Fear Of Running Out (FORO) – the worry that pension savings may be depleted too early, leaving insufficient income later in life.
Many retirees find themselves asking questions such as:
As a result, some individuals become overly cautious and spend significantly less than they could comfortably afford, despite having accumulated substantial retirement savings.
Financial planning can play an important role in addressing these concerns.
Through detailed reviews of expenditure, assets and future objectives, alongside the use of cashflow modelling, it is possible to assess whether existing resources are likely to support a desired lifestyle throughout retirement.
This can provide reassurance that spending plans remain sustainable, including allowances for larger one-off expenses such as holidays, home improvements or replacing a car.
In some cases, it may also demonstrate that retirement is achievable earlier than originally anticipated, helping people make informed decisions about when they wish to stop working.
Perhaps most importantly, effective planning can provide reassurance that it is acceptable to spend the money that has been accumulated for retirement, whilst remaining confident that future needs can still be met.
Whilst running out of money is a common concern, the reality is often more complex than many people assume.
Retirement income is rarely reliant upon a single source.
In addition to pension savings, many retirees may have other assets available, such as ISAs, investment portfolios, property or cash savings.
Over time, guaranteed income sources such as the State Pension may also form an increasingly important part of retirement income.
The purpose of ongoing financial planning is to identify potential shortfalls before they become a problem.
Cashflow modelling can help highlight whether future spending plans appear sustainable and, if not, provide an opportunity to consider alternative strategies at an early stage.
These strategies might include adjusting expenditure, reviewing withdrawal levels, changing investment strategy, utilising other assets more effectively or, where appropriate, considering the role of equity within your home within a broader retirement plan.
By regularly reviewing plans and adapting them as circumstances change, retirees can gain greater confidence that their resources remain aligned with both their current needs and their longer-term objectives.
A common misconception is that investment risk should automatically reduce once retirement begins.
For some individuals this may be appropriate, but retirement does not necessarily mean investments should become overly cautious.
Many retirees may spend 25 to 30 years or more in retirement. In fact, for a couple retiring today there is a realistic possibility that one partner could live well into their 90s.
As a result, retirement planning often needs to consider investment growth over several decades rather than just capital preservation.
The key question is not simply “How much risk do I want to take?” but “How much risk do I need to take to achieve my objectives?”
When reviewing investment strategy in retirement, factors that should be considered include:
Every retiree’s situation is different, which is why tailored investment advice remains an important part of retirement planning.
Tax efficiency can have a significant impact on how long retirement assets last.
A common misunderstanding is that the State Pension is tax-free.
In reality, the State Pension is taxable income. However, tax is not usually deducted before it is paid.
Where additional taxable income exists, HMRC will typically collect any tax due through other sources of income or through a self-assessment tax return.
Most defined contribution pensions allow up to 25% of the fund to be accessed tax-free, subject to current legislation and available allowances.
Many people assume this must be taken as a lump sum. However, it can also be phased alongside taxable withdrawals to create a more tax-efficient income strategy.
This can help:
For those retiring before State Pension age, there may also be valuable opportunities to utilise otherwise unused personal allowance before State Pension income commences.
Careful planning can help maximise these opportunities while ensuring the strategy remains appropriate over the long term.
As life expectancy increases, it is becoming more common for people to receive inheritances later in life, often when they have already retired.
Receiving a significant inheritance can create opportunities, but it can also raise new questions.
For some retirees, an inheritance may strengthen long-term financial security, allowing additional funds to support future spending needs, healthcare costs or family assistance.
The funds could potentially be invested through a combination of:
These can provide additional flexibility and help create a diversified and tax-efficient retirement income strategy.
For others, the inheritance may not be required to support their own lifestyle and could instead increase an existing inheritance tax liability.
In these situations, options such as gifting strategies, trusts or, in some circumstances, a Deed of Variation may be worth considering as part of wider estate planning discussions.
The best course of action will depend on individual circumstances, objectives and family arrangements.
Retirement can last for several decades, during which time legislation, tax rules, investment markets and personal circumstances are likely to change.
Regular financial planning can help ensure your strategy remains aligned with your objectives throughout these changes.
The decisions made after retirement can be just as important as those made beforehand.
From managing retirement income and investment risk to planning for inheritance tax and considering how best to use inherited wealth, ongoing financial advice can help ensure your financial plan continues to meet your needs as circumstances evolve.
With increasing complexity and changing legislation, regular reviews can provide reassurance that your retirement strategy remains aligned with your goals, helping you make informed decisions for both yourself and future generations.
Here are some of the key questions you should ask yourself when reviewing your finances in retirement:
Talking to an expert financial adviser can help you navigate through retirement and create a personal financial plan to ensure you’re making the most of your time.
Get in touch with one of our advisers today to start your post-retirement journey.
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Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.
Post-retirement financial planning is the process of managing your income, investments, taxes and estate after you stop working to ensure your money lasts throughout retirement.
Most advisers recommend reviewing your retirement plan at least annually or whenever there is a significant change in your finances, health or legislation.
Sequencing risk is the danger that poor investment returns early in retirement reduce the long-term sustainability of your pension because withdrawals are made while markets are falling.
Yes. The UK State Pension counts as taxable income, although tax is usually collected through your other income rather than deducted before payment.
Not necessarily. Many people spend 25–30 years or more in retirement, so maintaining some investment growth may be necessary to keep pace with inflation.
Fear of Running Out (FORO) describes the anxiety many retirees feel about spending their pension savings, even when they have enough money to support their lifestyle.
From April 2027, unused pension funds are expected to be included within a person’s estate for inheritance tax purposes, making estate planning even more important.
Yes. Cashflow modelling can show how your income, investments and spending may evolve over time, helping you make informed decisions and gain confidence in your retirement plans.
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