Maximising your savings in retirement
Building your savings in retirement provides both security and flexibility. Whether you’re looking to save for emergency repairs, fund a passion project or support your family, a dedicated savings account could help your money go further.
In this guide, we break down how to save in retirement, choose the right savings account and navigate the rules around tax and pensions – helping you stay in control of your finances.
Is it worthwhile saving money in your 60s?
It’s a common misconception that once you reach your 60s, it’s too late to focus on saving. In reality, saving money in retirement can still play an essential role in your financial security and peace of mind.
Here are some of the key reasons saving can still matter after you retire:
A safety net for the unexpected
Even with a pension income, unplanned expenses can arise. Home repairs, replacing a car, private healthcare costs or supporting your family could put pressure on your monthly budget. Having accessible savings means you don’t need to rely on a credit card or disrupt your regular income to cover these costs.
Supporting your lifestyle
Your 60s and beyond may include travel, hobbies, home improvements, or simply enjoying more freedom with your time. A retirement savings account can help you plan for these goals separately from your essential everyday spending.
Helping your money go further
Everything from the weekly shop to energy bills tends to go up over time. The interest you earn in a savings account could help your money stretch as far as possible.
Many people also look for the best savings accounts for over 60s to ensure their money remains secure, earns interest and is easy to access when needed.
How much should I be saving in retirement?
There isn’t a fixed amount you should save later in life. The right figure depends on your income, your spending and the level of flexibility you want.
A practical way to start is to look at what comes in each month from your State Pension and any private or workplace pensions. Then compare this to your essential outgoings, such as housing, food and essential bills. If you have money left over, even a portion can be directed toward retirement savings.
For example, if your monthly income is £1,800 and essential spending totals £1,500, you may have £300 remaining. Saving £150 each month would build £1,800 over a year, while still leaving room for flexibility.
Do you have to pay tax on your savings after you retire?
Yes, taxes can still apply to your savings in retirement.
While you may have stopped working, tax can still apply to the interest you earn on your savings. Whether you pay tax depends on your total income in retirement, not simply your age or employment status.
What counts as income in retirement?
Income tax still applies after your retire. This includes:
- Your State Pension
- Workplace or private pensions
- Rental income
- Part-time earnings
- Taxable investment income
Your savings interest is added to this and assessed within the same income tax bands.
The Personal Savings Allowance
Many people benefit from the Personal Savings Allowance (PSA). This means:
- Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free each tax year
- Higher-rate taxpayers can earn up to £500 tax-free
- Additional-rate taxpayers do not receive a Personal Savings Allowance
Whether you pay tax on savings interest depends on your total income and which tax band you fall into.
For example, if your pension income keeps you within the basic-rate band and your savings interest is below £1,000 for the year, you may not need to pay any tax on it. If your interest exceeds your allowance, the excess could be taxed at your usual income tax rate.
If you’re exploring how to save in your 60s, it’s worth understanding how your retirement savings fit into your broader income picture. Tax rules can change, so it’s always sensible to check the latest guidance from HMRC or speak to a financial expert if you’re unsure.
Choosing the best savings account type
When thinking about how to save in retirement, the type of savings account you choose can make a difference.
In retirement, predictability and flexibility often become more important than high returns or long-term growth. You may want your money to be secure, easy to access and earn interest, without taking unnecessary risks.
Different savings accounts suit various needs. The right option depends on how quickly you need your funds and how comfortable you are locking them away for a set period.
Below are two common options many retirees consider:
Easy access savings
An easy access savings account allows you to withdraw your money whenever you need it.
This flexibility could be helpful in retirement, especially if you’re using your savings as an emergency buffer or for planned short-term expenses, such as holidays or home repairs.
Benefits include:
- Immediate access to your money
- Interest earned on your balance
- No long-term commitment
The trade-off is that interest rates may be lower than those in fixed accounts. However, for many people over 60, accessibility is a priority.
Fixed-rate accounts
A fixed-rate savings option allows you to lock your money away for a set period, for example, one, two or five years, in exchange for a guaranteed interest rate.
Benefits include:
- Guaranteed interest rate for the term
- Often higher rates than easy access accounts
- Predictable returns
The trade-off is reduced flexibility. You usually can't withdraw money until the term ends without paying a penalty.
Easy access compared to fixed-rate savings
| Feature | Easy Access Savings | Fixed Rate Bond |
|---|---|---|
| Access to money | Withdraw money at any time (some accounts may limit the number of withdrawals) | Money is locked in for a fixed period. Early access may not be allowed or may incur a penalty |
| Interest rate | Variable: the rate can go up or down | Fixed: the rate is guaranteed for the set term |
| Flexibility | High flexibility. Ideal for short-term needs, emergency funds | Low flexibility. Designed for money you can set aside |
| Suitable for | Emergency savings, short-term goals, or keeping cash accessible | Longer-term savings that don't require immediate access |
| Predictability | Returns can change if the interest rate changes | Returns are predictable and known in advance |
Smarter ways to manage your retirement savings
Managing your retirement savings doesn’t have to involve complex financial strategies. Often, it’s about practical steps that help your money last longer and work harder for you.
1. Review your spending habits
One simple starting point is reviewing everyday spending. Regular subscriptions, insurance renewals and utility tariffs can all increase gradually over time. Checking these annually and switching where appropriate can be one of the simplest money-saving tips for pensioners.
2. Check interest rates
Keeping some money in an easy-access account can provide flexibility for emergencies and short-term needs. However, if a large proportion of your savings is earning little or no interest, it may be worth reviewing whether part of it could be placed in an account offering a more competitive rate while still giving you flexible access.
3. Review your investments
Your investment strategy may need to evolve in retirement. While growth can still be important, many retirees look to balance:
- Stability
- Reliable income
- Long-term financial security
Regular reviews can help ensure your investments continue to align with your goals and risk tolerance.
How The AA could help you save in retirement
Readily available savings can continue to support you after you stop working. Keeping some money in an easy-access account could help cover unexpected expenses, reducing the need to make unplanned pension withdrawals or sell investments at the wrong time.
Ready to start saving money in your retirement? You can open an AA savings account online if you:
- Are a UK resident with a UK address
- Are aged 18 or over
- Have a UK mobile number
- Have UK tax residency only
- Have an open UK personal account that can be used as a nominated account
- Have a valid photo ID
Explore our easy access savings accounts to get started.
FAQs
Can I still open new savings accounts after retirement?
Yes. Retirement doesn’t prevent you from opening new savings accounts. Many banks and providers offer options suitable for older customers, including easy access and fixed-rate accounts. Some products are specifically marketed as the best savings accounts for the over-60s, but eligibility depends on the provider rather than employment status.
Can I pay into a pension if I’m retired?
Yes, even if you’re retired, you can still contribute to a pension if you have earnings from part-time work or self-employment. Contributions eligible for tax relief are limited to 100% of your earnings or £3,600 a year, whichever is higher. If you have no earnings, you can usually contribute up to £3,600 each tax year.
How much should you have in savings when you retire?
There isn’t a fixed amount everyone needs. The right level of retirement savings depends on your income, essential outgoings and the level of flexibility you’d like. Many people aim to hold enough accessible savings to cover several months of essential expenses, alongside their pension income. The focus is usually on security and flexibility rather than growth.
Are there savings accounts specifically for people over 55 or over 60?
Some providers offer accounts designed for older savers, often called savings for pensioners or savings accounts for the over-60s. These accounts may offer competitive interest rates or features tailored to accessibility. However, many standard savings accounts are also available regardless of age. Comparing features such as interest rate, access and flexibility can help you choose the right option.
How much savings interest is tax-free for retirees?
Tax still applies in retirement, but allowances may reduce the impact. Most basic-rate taxpayers can earn up to £1,000 in savings interest each tax year tax-free under the Personal Savings Allowance. Higher-rate taxpayers can earn up to £500 tax-free. Whether you pay tax depends on your total income, including pension income, and your tax band.
Should I keep savings in cash or invest during retirement?
This depends on your personal circumstances and comfort with risk. Cash savings can provide stability and easy access, which many retirees value for day-to-day security. Investing may offer growth potential, but it also carries risk and isn’t suitable for everyone. If you’re unsure, it’s best to review your situation carefully or seek expert financial advice before making investment decisions.