Retirement plan checklist: 2 years from retirement

As you near your planned retirement date, you might be thumbing through holiday brochures and drawing up a list of things you want to do once you stop work.

But this run-up to retirement is also a key time to finesse the details of your financial plan to ensure it can fund the lifestyle you are hoping for.

Two years before retirement is an ideal opportunity to do this—close enough to start finalising details, but with enough leeway to adjust if needed.

At this stage, the focus may be on managing risk while also deciding on the most appropriate way to make income for retirement. Remember, this may evolve from the early to later years of your retirement, so build flexibility into your plans where possible.

The checklist below highlights key issues to consider at this stage.

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Dial down investment risk

Many people will still want to keep part of their pensions and ISAs invested in growth assets like equities, particularly if they plan to keep this money invested into retirement. But plenty will be looking for a more balanced approach, shifting some funds into less volatile holdings, such as corporate bonds, gilts, cash, and real assets like property or infrastructure funds.

Effective diversification can help to reduce losses in the event of a market downturn. Even if you remain primarily invested in equities, you can make sure to diversify across different funds, geographies, and sectors.

If you plan to buy an annuity upon retirement, it is important to gradually shift your portfolio so that the majority or all of it is in lower-risk investments (such as bonds and gilts) to mitigate market falls. Always remember that the value of pension savings can go down as well as up, so you may get back less than you saveinvested.

• Read: Is my portfolio diversified enough?

Refine your budget

If you are two years from retirement, you should have a clearer idea of likely spending needs once you stop working. Will you have repaid the mortgage, or will you need to make repayments for a few more years? The higher inflation we’ve seen in recent years may mean you need to re-adjust previous assumptions about retirement spending, particularly given the rise in essential household costs such as energy and food bills.

Industry body Pensions UK’s Retirement Savings Guidelines are a helpful rule of thumb for how much you might spend in retirement. 

If spending is one side of your retirement financial plan, then income is the other. Now is a good time to get up-to-date valuations for your company pensions, SIPPs, ISAs, and other investments. Don’t forget your State Pension entitlement. You can check what you will receive, and when at www.gov.uk/check-state-pension.

The State Pension age will start rising again from April next year, so don’t assume you will get it on your 66th birthday. If you are affected by this you may need to adjust budgets to cover these additional months, or change your retirement date.

• Read: Triple Lock: what will the State Pension be in the future?
• Learn more about our cashback offer on transferring pensions and ISAs 

Plan your income strategy

With a clearer idea of spending, it’s time to decide how you will take pension benefits. This can be complex, as many people retiring today have a mix of different pension types, alongside ISAs and other investments.

Consider in what order you might use these savings, and how much you will take. Remember, these funds need to last throughout retirement, which could span decades. Taking too much in the early years risks depleting running out of money later on.

When it comes to pensions, weigh up the different income options, be it taking one-off or ad hoc lump sums, drawing down a regular income, or using funds to buy an annuity. Ensure you understand the tax implications of each option, including income tax and inheritance tax considerations.

One key question: what proportion of your essential bills will be covered by guaranteed income—such as the State Pension or any defined benefit pension payments? If these don’t cover your day-to-day expenses, you may want to explore annuity options.

Remember, you can take a mix-and-match approach — using part of your savings to buy an annuity while leaving the remainder invested for flexibility. Alternatively, you may opt to leave funds invested initially, with a view to purchasing an annuity later.

• Use our retirement planning calculators to see what pension income you're heading for

Look to the longer term

It’s easy to focus solely on the looming retirement date, but major life changes are an opportunity to review your wider finances. For example, you may no longer have access to employer benefits like life insurance or private healthcare.

Check that your will is up to date and consider other issues such as setting up a power of attorney, planning for future care costs, or managing potential inheritance tax liabilities. These may not be immediate concerns, but having a plan in place gives you more options in the future.

Retirement isn’t a ‘one-and-done’ event—it’s a process, and your financial needs will change as you age. A robust retirement plan should reflect this.

Get guidance and advice

Some of the most complex financial decisions people make are around retirement, so it’s worth get a second opinion. Providers like Fidelity offer a wealth of information, calculators, and tools on their website to help you crunch the key numbers.

Fidelity’s Retirement Service also has a team of specialists who can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.

Alongside this, you can get free and impartial guidance from the government-backed Pension Wise service, which offers both telephone and face-to-face appointments to talk through your options. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 011 3797.

Those with more complex financial situations may also want to seek specialist financial or tax advice. A Financial Adviser adviser will look at your personal circumstances and your financial plans and recommend products to help you meet your needs, though this will have a charge.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question. 

Read more from our series: 

• Retirement plan checklist: 5 years from retirement
• Retirement plan checklist: 10 years from retirement

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a SIPP and tax treatment depends on personal circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.