My pension goals for 2025

There’s some loose symmetry between this calendar year and my personal retirement plans. We are now 25 years into the current century, and in 25 years’ time I’ll be able to claim my state pension.

It’s not the most exciting observation, admittedly. But let’s face it, retirement planning is hardly thrilling. And in truth, that’s how it should be. I’ve kept things vanilla throughout my first two decades of saving and have no urge to change tack as I edge towards the halfway point.

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The quarter of a century time frame to state pension age brings mixed feelings. Through one lens, it seems a long time - I don’t need to panic to whip my portfolio into the required shape. But through another lens, my late teens don’t feel particularly long ago, and time has an unnerving habit of appearing to speed up as the years roll by.

With the confirmation (and acceptance) that I’m firmly in middle age, I’ve decided for 2025 to give my retirement plans a closer inspection than in years gone by.

I’d love to claim I always practice what I preach and rigorously review my savings every year, carefully updating spreadsheets and punching figures into pension calculators to work out whether my retirement goals are on schedule. But that isn’t quite the reality.

A career swap around a decade ago - which forced me to pause pension contributions for 18 months - means I’m not quite where I’d like to be. I have, however, reached midlife with a solid foundation, one that I now need to build on.

With all this in mind, here are some of the ways that I plan to get closer to my retirement goals in 2025.

Sharpen the focus on my specific retirement plans

When I was 26 years old, I sat in my employer’s regional office with two fellow financial advisers – one in his mid-40s, the other mid-50s. As we chatted loosely about our plans for retirement, it became evident the clarity of our goals was hugely disparate.

Me, being the youngest of the trio, had the vaguest vision of retirement. I still had four decades on my side, and more immediate financial goals such as getting on the property ladder were a far bigger priority.

My colleague in his mid-40s had started to nail down his later-life plans, with some idea about how much income he’ll need and when he’d like to pack up work.

In contrast, the eldest among the three could clearly articulate his retirement. It was his chief financial aim, and he knew exactly what was required to get there.

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This, of course, makes a lot of sense. With every passing year, the focus on retirement planning needs to sharpen. I want to avoid sleepwalking through my 40s and be hit with a wave of panic to make up for lost time. Also, circumstances, goals and pension rules change over the years, and when they do, our retirement strategy must often adapt with them.

I currently have no intention of packing up work completely when I hit state pension age. I personally find the thought of a hard-stop retirement quite scary.

That said, I’m aware I may not reach my late-60s in the best shape, or I could have a change of heart, and wish to close the laptop for good.

But my current view is that provided I have the cognitive and physical capacity to write, I’d like to carry on doing so. Not only would this generate some handy extra cash in old age but also help me to retain some purpose and keep my brain ticking over.

So, with a quarter of a century to go, it’s key for me to work out how much I need to save to have the option to select either route; to retire on my own terms.

Harness employer contributions and tax relief

There are two main things that set pensions apart from other saving and investment vehicles.

The first is upfront tax relief, which is applied at your marginal rate. This essentially means you don’t pay tax on earnings that you invest into a pension. My workplace operates a salary sacrifice arrangement, which means I forgo a portion of earnings for an equivalent pension payment. By law, if I pay 5% of qualifying earnings into pension, my employer must pay 3%.

Fortunately for me, ii offers something more generous, and I make the most of it, recognising that everything they contribute, plus any tax relief, is free money for me to spend in my later years. It means my employer and the government are doing their fair share of the legwork, making it much easier for me to accrue funds faster.

I will also add a single lump sum to my self-invested personal pension (SIPP) between now and 5 April to trim my tax bill and give my retirement savings a further boost. I share my intended investment strategy for these funds below.

Stick with the tried-and-tested investment strategy

I like to take a no-frills approach within my retirement portfolio - which comprises a workplace pension and a SIPP - opting for global index funds at the core, complemented by a smattering of satellite holdings in more niche and speculative areas of the market.

As things stand, I have no plans to buy an annuity with my savings. One reason is that, as noted above, I don’t plan for a hard-stop retirement. This means the facility to make flexible withdrawals from my SIPP is paramount.

Clearly, a lot can change in 25 years, so my stance on either buying guaranteed income or phased retirement may shift as I hurtle towards my golden years.

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From an investing point of view, I see no reason to choose anything other than the stock market right now. I appreciate the diversification benefits of fixed interest but want to avoid anything defensive until I’m close to drawing retirement income. My current retirement pot and this year’s contributions should have two and a half decades to grow.

I invest 100% in global equities with my regular contributions and plan to continue this strategy.

The one tweak I will make this year is to allocate half my single, lump sum to something a bit racier. Sticking with my proclivity for low-cost passive strategies, I like the look of iShares MSCI EMU Small Cap ETF EUR Acc GBP (LSE:CES1).

Given my time frame and the small allocation relative to my broader portfolio, I’m happy to accept higher volatility for the prospect of outsized returns.

Beef up ISA to supplement pension savings

As illustrated in point 2, pensions usually rule the roost as a retirement saving vehicle.

However, one drawback is that under the current schedule, the earliest I’ll be able to access my pension pot is age 57, around a decade and a half away. It’s therefore important for me to have other investments within my portfolio to dip into should I need or want some cash. Individual savings accounts (ISA) - which shelter any gains and income from the taxman and can be accessed at any time without penalty – fit the bill perfectly.

Even if I haven’t spent my ISA savings before I reach retirement, having an accessible pot of money that I can dip into without adding to my tax bill will be a nifty weapon in my armoury – especially once I’ve exhausted the tax-free portion of my pension savings. Having healthy sums in a SIPP and ISA widens my options both before and during retirement.

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I paused my regular stocks and shares ISA contributions last year as I needed the spare cash for an immediate goal. Now this has been achieved, I’ve recently restarted payments to beef up my modest sum. While I doubt I’ll ever get close to ISA millionaire status, I can drastically improve my future financial security.

Like with my pension, my investment strategy is short on bells and whistles. I invest the bulk in Vanguard’s LifeStrategy 100% Equity Fund, supported by Liontrust UK Smaller Companies to add a bit of spice.