1) Not reviewing your pensions

It is important to review your pension regularly. If you find you have a shortfall, you may still be able to take steps to achieve the income you want when you retire. The Money Advice Service’s pension calculator can help you plan.

It’s also important to ensure your pension investments remain appropriate for your needs. In the run up to retirement it may be prudent to gradually alter the asset mix in order to meet your objectives during retirement. For instance, if you are planning to buy an annuity it may be worth reducing investment risk, or, if you are planning on taking an income from your pot via pension drawdown, you may wish to include more income-producing investments to fund withdrawals.

It is also worth reviewing the charges being levied on your investments and those of your pension provider to ensure they are competitive.

2) Underestimating life expectancy

Many people underestimate the length of their retirement. On average, people aged 55 today will live to their mid-to-late 80s, but around one in 10 men and one in five women this age will live to 100.  If you’re retiring at 65 and you’re in good health, you should realistically plan for up to 35 years.

The Office of National Statistics calculator can give an estimate of average life expectancy. The longer you leave the money invested in your pension and continue to pay into it, the higher your income could be when you choose to take it. It is also important not to take too much of your pension money in early retirement as this could mean you won’t have enough for later.

3) Underestimating the cost of living

Everyone’s circumstances, needs and desires in retirement are different, but with lots of free time on your hands, you may find you need more money than you thought. Remember too that income is needed for your whole lifetime, and a lot can change. Rises in the cost of living can erode the spending power of cash, and although inflation is currently at a low level, the effects can still be dramatic over time. You need to strike the right balance between retirement dreams such as leisure pursuits or travelling with the requirements of later life when long-term care costs may need to take precedence.

4) Overestimating investment returns

In the past few decades an environment of decent economic growth and falling interest rates has provided a fair wind for most investments. Despite some notable hiccups such as the dotcom bubble and the global financial crisis in 2008, with income reinvested bonds, equities and property have all delivered reasonable returns.

Going forward the economic outlook could be entirely different. Interest rates are exceptionally low, and there seems little prospect they will rise in the short-to-medium term. This means the returns on cash in banks and building society accounts are likely to remain low. Yields on fixed interest investments such as bonds have fallen, meaning you need a larger capital sum to generate a particular level of income.

A low inflation, low interest rate, low growth environment could also mean investment returns are going to be lower than they have been historically. These trends may mean it is necessary to either start saving for retirement earlier in life, make additional contributions or settle for a later retirement date.

5) Believing your home is your pension

Some people take comfort in the fact they have built up equity in their home and therefore have the option of downsizing should they need to. However, as well as any tax consequences you need to consider how much income this can realistically generate.

For instance, if your house is worth around £500,000 and you downsize to a £250,000 property you can release £250,000 to help fund retirement. It may sound like a lot of money, but with equity income and corporate bond funds typically yielding in the region of 4% per annum, a portfolio built from these would realistically produce about £10,000 a year – though yields are variable and your capital is at risk.

6) Not assessing all your retirement options

When you’re approaching retirement you have lots of decisions to make. Whether you choose to buy an annuity, draw an income from your pension investments via drawdown or a combination of the two, it is worth spending time assessing your options to make sure you are selecting an appropriate route.

If you’re buying an annuity –  a guaranteed income for the rest of your life – it’s important to shop around for the best deal. Rates vary between providers, and if you’re a smoker or have a medical condition you could qualify for special rates with some providers.

If you’re considering a drawdown pension you’ll need to be involved in choosing and managing your investments, or get financial advice. A useful start is Pension Wise – the government’s free and impartial service.

7) Paying more tax than necessary

Under current rules, once you reach normal retirement age you can normally take a money purchase pension pot as cash in one go. However, 75% of this sum is taxable under current rules and added to other income in the tax year, it could push you into a higher tax band.

You can phase your retirement and take both 25% tax-free lump sum and taxable income in stages. Spreading withdrawals over more than one tax year in this way can mean you make the most of tax allowances and avoid paying more than necessary.

Rob Morgan is a pensions and investment analyst at Charles Stanley Direct