How to plan for your retirement

In this section we will cover:

• How to think about funding your retirement
• How to supplement a pension in retirement

How much money will you need?

The closer you are to retirement, the more clarity you’ll have on the amount of money that you’ll need to live comfortably once you’ve stopped working.

People across all age groups are at risk of leaving it too late to plan properly for retirement, according to a J.P. Morgan Asset Management survey of 2,000 adults aged 18 to 65. Only 41% of respondents to J.P. Morgan Asset Management’s survey are confident about the standard of living that they’ll have in retirement. 

The Pensions UK trade body estimates that a one-person household will need to spend £43,900 annually to enjoy a comfortable retirement – one that includes financial freedom and some luxuries. This threshold rises to £60,600 per year for a two-person household.

So while having pension savings of £500,000 at the point of retirement, for example, might seem like a vast sum, according to the Pensions UK trade body's estimates it alone wouldn't be enough to fund a comfortable retirement for a one-person household for much more than a decade. Therefore you probably need more savings than you think, particularly if you want to enjoy a comfortable retirement. You can, however, also benefit from the state pension, assuming current rules stay in place.

Consider, too, how long you can expect to live in retirement. The normal minimum pension age to withdraw your workplace or personal pension, without incurring a significant tax charge is 55 – rising to 57 in April 2028. This is the point where most people can access their pension savings and set these against life expectancy estimates.

According to the Office for National Statistics, as of 2021 to 2023 the life expectancy for the average British woman is approximately 83 years, while for the average British man it's approximately 79 years. This means if you retire at 55, your pension savings would therefore need to last you around 25 years at the least.

These estimates are subject to change, so it’s a good idea to build in some additional headroom to ensure you potentially don’t run out of savings in retirement. 

If you’re aged 45 to 65, it might be a good idea to use the government’s free Midlife MOT service, which is designed to help you take stock of your financial situation and plan for your future. If you’re eligible, you can also book a free appointment with the government-backed Pension Wise service to explore the options for withdrawing from your defined contribution pension.

How can I retire early?

Retiring early means different things to different people.

Some people, for example, might aim to retire by the age of 55. We've got an in-depth guide about this aspiration.

We think it can be helpful to think about the number of years in retirement. While it is never too late to make a plan, a long-term commitment of regular contributions may give you the best chance of building a sizeable pension pot. Yet 40% of survey respondents aged 18-34 to J.P. Morgan Asset Management research have not started saving or investing for retirement beyond their workplace pension.

You can get an idea of how much you would need to save regularly from various ages by using our Pension Calculator, which could help you plan how to retire early.

The calculator makes a number of assumptions, so the results should only be used as a guide (it also assumes living in retirement for 20 years rather than our more optimistic 25 below). The Pension Calculator is designed to be a forecast. Forecasts are not a reliable indicator of future performance.

Table 1: How much do I need for a 25-year retirement at different levels of expenditure

Source: Expenditure comes from Pensions UK, November 2024. Pension pot estimates are from J.P. Morgan Personal Investing created using a model that makes several other assumptions set for the purposes of comparison, but in reality may change and go down as well as up. Assumptions as follows: 1) Inflation increases outgoings by a steady 2% per year, every year. 2) Net growth rate in the pension portfolio remains steady at 3% per year, every year after charges and inflation. 3) Any tax free lump sum has already been taken. 4) Tax is paid on income drawn from the pension at 20%. 5) The unlikely scenario that the personal allowance – on which income tax is not charged – remains steady through the 25 year period at £12,570. We have assumed state pension deferral. 

When should I engage with my pension?

The sooner you engage with your pension, the better. You can sign up to a UK personal pension from the age of 18 or if you are younger, then an adult can do this on your behalf as long as you are a UK resident. If you are an employee you will typically be placed in a ‘default’ investment strategy for your pension, but may have the option to choose alternative funds, such as one that places a greater emphasis on socially responsible investing. We recommend that all savers take the time to read the communications sent to you by your pension provider, which will usually tell you how much money you have saved.

How to supplement a J.P. Morgan Personal Investing pension in retirement

We believe that a pension is the leading investment product for most people in retirement. But there are other investment products that can supplement a pension. Having a diverse range of investment products can help to take advantage of the various tax allowances on offer to savers. Having a mix of products may also help to protect you from the impact of changes in legislation.

Currently, our pension product does not offer our Income Investing strategy, which focuses on generating a regular stream of income from your investments by investing in exchange-traded funds that are likely to pay dividends. We also do not offer our Thematic Investing strategy via our pension product. These strategies are, however, available via our other products.

Lifetime ISA

The Lifetime ISA (LISA) is another tax efficient investment product that can be an effective vehicle for retirement saving. The LISA is a product for people aged between 18 and 39 to put money aside for their first home or retirement. You can contribute up to £4,000 per tax year and the government will give you a 25% bonus – that's up to £1,000 every year. The amount you pay in, not including any bonus you earn, is included in your annual tax free ISA allowance of up to £20,000 per tax year.

You can use your stocks and shares LISA to buy your first home worth up to £450,000 or invest into it until you turn 50, and access it at 60. In either instance, you can withdraw your money tax free, including the 25% government bonus. Withdrawing outside of these scenarios means you will incur a 25% government withdrawal charge, and you may end up getting less than you originally contributed.

The annual contribution limit of £4,000 for your LISA is part of your overall £20,000 annual ISA allowance – so if you contribute the maximum amount to your LISA, you would have £16,000 left to contribute to other types of ISAs.

Stocks and Shares ISA

A stocks and shares ISA invests in the stock market, and can be used to generate tax-free investment returns to help fund your retirement. 

The stocks and shares ISA is more flexible than the LISA, as you can withdraw from the account at any time without incurring a penalty, and its proceeds can be used for any purpose. But you won’t receive the government bonus that comes with the LISA. As with the LISA, there is also a cash ISA product available on the market, although J.P. Morgan Personal Investing does not offer it.

Our Stocks and Shares ISA gives you access to our Income Investing strategy, which focuses on generating a regular stream of income from your investments by investing in exchange-traded funds that are likely to pay dividends. Currently, our pension product does not offer our Income Investing strategy.

Self-invested personal pension

A self-invested personal pension (SIPP) is a type of personal pension that you can arrange and control yourself. It allows you to choose a provider and then decide how much and how often to contribute to it, as well as how your money is invested. You can normally open a SIPP from the age of 18, or open one on behalf of someone younger, although in some cases cannot start to pay into one after you reach the age of 75, unless you are transferring from an existing pension. Tax relief on personal contributions ceases at the age of 75.

SIPPs offer the same tax advantages as other private pensions. J.P. Morgan Personal Investing does not offer SIPPs.

Annuity

An annuity is a financial product that you can buy with your pension savings that pays income for life or over a pre-determined number of years. They are sold by insurance companies and investment companies, and are not offered by J.P. Morgan Personal Investing.

Property

You might consider having a buy-to-let property as an alternative to paying into a pension, as you’d be receiving a rental income as well as potential capital gains when you sell it. Using property as a pension alternative can work well in an environment where interest rates are low and house prices are rising.

If you’re intending to use property to help fund your retirement, here are some points to note:

• The sale of your property may be subject to Capital Gains Tax (CGT) on any profit you make, which will reduce your overall return.
• When you have a buy-to-let, you may pay a higher rate of Stamp Duty than when buying a property to live in yourself.
• If you don’t sell your buy-to-let before you die, it may be subject to Inheritance Tax (IHT). IHT is also payable on the proceeds of the sale of a property.
• Rentals come with outgoings like service charges, letting agent fees, landlords and buildings insurance, maintenance costs and the risk of no rent when the property is empty.
• Managing a property and your tenants takes time and commitment.
• Mortgage deals for buy-to-lets are not as attractive when interest rates are high.
• Property prices may go down, and you could even end up in negative equity.

How are personal pensions affected by Inheritance Tax? 

At the time of writing, most pensions are not subject to IHT. This, however, will change from 6 April 2027, when most unused pension funds and death benefits will be treated as part of a person’s estate and will be subject to IHT.

When someone dies, IHT is charged on their estate at a rate of 40% of the value of assets above a set threshold. The current ‘nil-rate band’ for IHT, below which there is no tax to pay, is £325,000. If you give away your home to your children or grandchildren your threshold can increase to £500,000.

Seek guidance and advice 

It’s a good idea to plan your retirement with help from experts. If you'd like some free guidance, you can book a call with a member of our team. Financial guidance means we can provide you with useful factual information on what each investment product does, to help enable you to make your own decisions.

If you want advice that is tailored to your needs, you can speak to one of our wealth experts, who can provide a fully personalised recommendation on your finances. Bear in mind, however they only provide 'paid restricted advice', which means they will only make investment recommendations on J.P. Morgan Personal Investing products and services.

For a taste of the kind of support that you can receive from J.P. Morgan Personal Investing, check out these tips from Claire Exley, Head of Advice and Guidance at J.P. Morgan Personal Investing:

1. Know what you have and make a plan. This sounds simple but lots of people don’t understand their existing pensions, where they're invested, what the charges are, and how much they will need for a comfortable retirement. Getting advice or guidance can make a real difference here.
2. Consider consolidating your pensions. If you have your pensions in one place it can make it easier to manage and potentially reduce fees (providing you don’t lose any valuable benefits – see point 1, know what you have!)
3. Make the most of any employer contributions from workplace pensions. Often your employer will match your contributions so if you’re not making the most of this, you could be missing out on free money.
4. Take the right level of risk for your time horizon. If retiring is a long way away you may be able to take more risk as you have time to ride out the ups and downs of the market – the default option for your pension might not be right for you (point 1 again).

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Pension/ISA/LISA eligibility rules apply. With LISAs, govt withdrawal charges may apply. This is general information, not personalised tax advice. Tax rules vary by individual status and may change. Before transferring, check you won't lose any benefits or pay any unexpected charges. During a transfer, your investments will be out of the market. Seek financial advice if you're unsure if a pension or transfer is right for you.