If you were born in 1954, you can retire and qualify for the State Pension when you’re over 65, but by taking control of your pension savings early enough, you might not have to wait for the State Pension to retire.
Yet complicated pension rules are vulnerable to change, so it can be difficult to keep up with the evolving landscape. Not knowing something as simple as when you qualify can disrupt retirement savings plans, impact how much you have for retirement, or even delay when you hang-up your working boots.
Currently most people can access their pension savings from the age of 55. You can then decide to take a 25% tax-free lump sum, or keep it invested in the market. Whilst many would like to retire at the age of 55, an extra ten years of saving into your pension could make a real difference to your quality of life when you retire.
When will I get my State Pension?
The State Pension is different to personal or workplace pensions. Once you hit State Pension age, the government will pay you a regular income throughout your retirement – as long as you’ve built up the required number of years of National Insurance contributions.
You can use the tool on the government website to check when you’ll reach State Pension age, your pension credit qualifying age and when you’ll be eligible for your free bus pass.
If you were born on 1 July 1954, your State Pension age is 65 years, 8 months and 5 days. This means you’ll be eligible for your State Pension on the 6 March 2020.
Is there a difference for men and women born in 1954?
The State Pension age has been transformed since 2010, when it was widely accepted that men would retire later than women. This has been reformed, with the female State Pension age rising to 65 from 2010-2018, and then 66, 67 and 68 for both men and women.
Two months before you reach State Pension age, you’ll get a letter telling you what to do. At this point, you can decide to either take your State Pension or delay it.
By deferring your State Pension, you could increase the amount you get as a weekly income when you come to claim it. The extra amount is paid with your regular State Pension payment.
As long as you defer for at least nine weeks, your State Pension will increase each week you defer. For every nine weeks you defer, your State Pension increases by the equivalent of 1%. This works out to just under 5.8% every full year.
How much State Pension will I get?
You’ll be able to claim the new State Pension if you were born in 1954 – in fact you’ll get the new State Pension if you’re a man born on or after 6 April 1951, or a woman born on or after 6 April 1953.
You’ll get £164.35 a week if you’re entitled to the full payment, which is over £8,500 a year. The actual amount you get depends on your National Insurance record.
You should get your State Pension within five weeks of reaching State Pension age. The day of the week you get your payments depends on your National Insurance Number.
- 00-19 – Monday
- 20-39 – Tuesday
- 40-59 – Wednesday
- 60-79 – Thursday
- 80-99 – Friday
Will the State Pension be enough?
Experts suggest you’ll need two-thirds of your final salary to maintain your lifestyle in retirement, and the reality is that you probably won’t be able to rely solely on the State Pension. The average retired household had a mean disposable income of just over £26,000 in the 2016/17 financial year, figures from the Office for National Statistics shows.
The State Pension is currently guaranteed by a triple lock, which means the amount you get in pension income will rise each year by inflation, average earnings, or 2.5%, whichever is higher.
This is an expensive guarantee, however, and could change in the future as the government attempts to deal with a growing pension deficit.
The State Pension is certainly a good supplement to the retirement income you generate from a personal pension, but it’s important you ask yourself whether you can comfortably rely on this during retirement.
Regular investment plans for investors
The two golden rules of saving for retirement are start as early as possible and save as much as you can. But how do you know if you’re doing enough to be on track to have the retirement you want?
Moneyfarm has created three regular investment plans to help investors understand whether they’re on track to get their desired retirement income. These savings plans of £400 a month, £800 a month and £1,600 a month, net of tax relief or employer contributions, fall well-within the top annual allowance threshold and represent contribution levels reflective of different life stages.
Some corporate schemes offer generous top-ups to pension contributions, and it may be worth taking advantage of these first.
As you get older, your priorities change and some of your big outgoings will stop – you’ll pay your mortgage off and your children will become more independent. You should look to put as much of this extra cash into your pension to boost your retirement income.
By setting aside this much each month you could be on track to a comfortable retirement income in less time than you think.
According to the FCA, it’s reasonable to expect that you can earn an annualised return of at least 5% from a balanced and diversified portfolio over the long term. If you assume 5% is your return, you can then withdraw 5% from your pension each year. Theoretically, you’ll never deplete the nominal value of your pension.
That means that for an annual income of £25,000, you’ll need a pension pot worth £500,000. For £37,500 a year you’ll need £750,000.
When calculating these numbers, we assumed you would have invested in a balanced diversified portfolio with 60% exposure to equities and 40% exposure to bonds.
If you’d started investing in a geographically diversified 60/40 model portfolio in 1990 and continued to today, we worked out that your money would have grown by an annualised 7.5%.
We’ve also calculated this rate of growth for our regular savings plans below, along with the FCA’s more conservative 5% growth estimate. These numbers also include an annual fee of 1% and include the impact of a 2% rate of inflation on the value of your savings pot.
How to plan for retirement
By taking control of your pensions savings plan early enough, you can have more flexibility over when you retire. Follow these four simple steps and get a step closer to getting the retirement you deserve.
- Get cost-efficient investment advice – Building the right portfolio that reflects your goals, your financial background and appetite for risk can be difficult to get right. Cost-efficient investment advice can help you make the right financial decisions for your future.
- Invest in a pension that changes to reflect you – Priorities change over time and it’s important your investments reflect that. At Moneyfarm we regularly run our suitability algorithms to ensure your investments put you in the best position for success. If they don’t we’ll match you with the portfolio that does. This is all free of charge, and part of our ongoing commitment to help you reach your goals.
- Consolidate your pensions – It can be difficult managing a number of different pensions. By transferring old pensions into one place you can lower costs and understand what you have better. By knowing the value of your pension you can make the necessary adjustments to reach your goals. Transfer to Moneyfarm for free and we could pay your exit fees at your current provider for you.
- Make the most of generous tax benefits – Basic tax relief means that most people get a 25% top-up to each contribution they make from the government. The tax relief system encourages Brits to save for their future, providing basic rate tax payers with 20% tax relief, higher rate taxpayers with 40% and additional rate taxpayers with 45% tax relief. If you fall in the higher or additional bucket, make sure you apply for your further relief through HMRC to make the most of your money. Read more.