The five years before retirement — a practical checklist
The five years before you stop working are the most financially consequential of your life. Decisions made in this window — about pensions, ISAs, State Pension, and housing — will shape your income for potentially 30 years. Here is what to work through, year by year.
5 years out: get the full picture
Locate all pension pots (Pension Tracing Service, old employer contacts). Request a CETV (transfer value) from each. Consider consolidating smaller pots into one manageable pension — see the for what to check before transferring. Get a State Pension forecast from gov.uk/check-state-pension and identify any NI gaps worth filling.
Run your numbers in the — this is the moment to see whether your trajectory closes the gap or leaves you short. If there is a shortfall, you still have time to address it.
4 years out: the drawdown vs annuity decision
This is the biggest financial decision of your retirement. An annuity converts your pot to a guaranteed income for life — certainty, but no flexibility. Drawdown keeps the pot invested and allows flexible withdrawals — potential for growth, but investment risk and longevity risk (outliving the pot). Most modern retirees choose drawdown for flexibility, but annuities are more attractive at older ages and high interest rates.
The lets you model how long a pot lasts at different withdrawal rates with and without the State Pension.
3 years out: ISA bridge strategy
If you plan to retire before State Pension age (67 for most people), you need to fund the gap from your own resources. This is where ISA savings become crucial — they can be drawn flexibly without affecting pension tax treatment. In the years before retirement, consider maximising ISA contributions to build this bridge pot separately from your pension.
2 years out: review your investment mix
Many default pension funds use 'lifestyling' — automatically moving into lower-risk assets as retirement approaches. If you're taking drawdown rather than buying an annuity, this may reduce your pot unnecessarily. Check what your default fund is doing and whether it matches your actual retirement plans.
1 year out: State Pension timing and sequencing
Decide when to take your State Pension. You don't have to take it at 67 — deferring by one year adds approximately 5.8% to your annual pension permanently. For someone expecting to live well into their 80s, deferring one year can be worth doing. The payback period for deferral is roughly 17 years from when you would have started.
Also plan your pension withdrawal tax treatment: taking too much from your pot in one year can push you into higher rate tax. Spreading large withdrawals across tax years, and using ISA drawdown alongside pension drawdown, can significantly reduce the total tax paid in retirement.