Top tips
At this stage of your life, you might have more spending power compared to those at the start of their careers, but you may have lots of competing financial priorities. So, now is the time to give some serious thought to a financial plan and how saving for retirement fits in with this.
You’ve made a good start, as you’re already paying into a USS pension, but it’s worth reviewing where you’re at and what you need, and coming up with a basic financial plan.
1. Look at what you’ll need
First thing to do is look at what you’ll need when you retire, the PLSA Retirement Living Standards gives you an estimate of the kind of income you’ll need when you retire, based on the lifestyle you want.
2. Look at what you’ve got
You’re already paying into the Retirement Income Builder, the defined benefit (DB) part of USS. This gives you a guaranteed income for life and a tax-free lump sum up to HMRC limits when you retire. Every year you build a block of pension based on an accrual rate (1/75 of your salary, up to the salary threshold). The pension you build up is banked and increased in line with inflation (subject to certain caps), giving you an element of inflation protection.
As long as you’re paying in to USS, you get life cover. Your beneficiaries may get a lump sum of three times your salary and a pension too. So, your USS pension will also help take care of loved ones.
To get an estimate of what your pension might give you when you retire, log in to My USS and use the Benefit Calculator.
3. Do you need to save more?
Once you’ve used the Benefit Calculator, if you think you’ll need more than your Retirement Income Builder pension is going to provide, you have the option of saving some more towards your retirement. USS is a hybrid scheme, which means we have a defined contribution (DC) part, the Investment Builder.
You can save more in the Investment Builder and use your savings in a range of flexible ways, like boosting your lump sum or simply as a kind of savings pot where you’ll benefit from tax relief. You can also decide to have us manage your investments for you or do it yourself with the option of aligning your investment strategy with your own aspirations, and there are ethical choices in each option.
To estimate what impact saving a bit more in the Investment Builder might have, you can use the Benefit Calculator in My USS.
4. Make a financial plan
If you need to save more for the retirement you want, think about looking at where that fits with your competing financial priorities and goals. In other words, financial planning.
Financial planning may sound daunting, but time spent focusing on your finances today could be valuable later down the line.
Start by identifying all your savings goals, not just retirement ones but what you want to achieve as a whole with your money, which might be building a savings pot for your kids, paying off your mortgage or simply lifestyle goals, like going on holiday. Then it’s worth breaking them down into short term goals (what you want to do in the next year), medium term (next five years) and long-term (what you’re aiming at beyond five years, like retirement).
Once you’ve set your goals, it’s time to prioritise them, and how much you can save towards what you want to achieve.
5. What does retirement for you look like?
Once you know how much you’ll need at retirement and what you’re projected to have by the time you get there, you need to decide what’s best for you. You might decide you want to take all of your USS pension in full when you retire, or that you’d rather retire early or late. Or if you’re not quite ready to switch completely from a full work life to retirement, you could opt for a more flexible retirement and continue to work a little (in agreement with your employer).
There’s no one size fits all here and a lot will depend on your personal circumstances. Visit the your options at different ages and stages page for more information.
Next steps
When it comes to making a financial plan and a broader plan for your retirement, here’s a few good places to start:
- Register for My USS to manage your pension online.
- Use the MoneyHelper’s budget planner to understand your household spending.
- Take a look at the MoneyHelper website and check out the mid-life MOT and guide on saving money on household bills.
- Check out our free webinars or watch a recording of a previous session – topics include about USS and planning for retirement.
- Use the Benefit Calculator in My USS to estimate what you’ll get in the future and the impact of saving more.
Published: 25 June 2024