Are you considering retirement in the near future? It’s a tempting thought to finish work and enjoy your hard earned Pension pot, but there are several things you need to consider before making the decision to withdraw from your Pension. In most cases it could be a good idea to see a financial adviser first.

The timing of your retirement matters.

The first thing to consider is that although you can retire at any age, you won’t be able to withdraw from your Pension until age 55 onwards, with this rising to age 57 from 2028.

When and how you choose to retire will depend upon the retirement goals and lifestyle you desire. Given the expense of funding retirement, most people won’t choose to do so until they can access their Pension.

Even after reaching retirement age, you need to carefully consider if retirement is the right choice to make. Could you continue to work and generate further wealth? Will your Pension pot be large enough to support a potentially long and expensive lifespan?

Consider how long you may live and how costly retirement could be. Just in the last year you’ll have noticed how quickly inflation can rise and create a cost of living squeeze. Consider how inflation could mount up over decades in retirement, would your Pension pot be sufficient amid the cost of a retiree lifestyle and care costs towards the end of life?

Speaking to a financial adviser could be a good idea, as they’ll have the professional expertise to assess your goals and objectives, and put a personalised plan in place.

Retiring is about more than just your Pension pot.

When thinking about your retirement you need to look beyond just your Pension, taking a holistic view of your personal finances.

If you have been paying off a mortgage, this could be a consideration whilst choosing when to retire. If you have paid your mortgage off, then you’ve likely removed one of your largest monthly costs and may be better positioned to retire. It may also be a consideration to downsize and if the value of your property has grown, this could be used to fund part of your retirement.

If you have been paying National Insurance for 35 years you’ll qualify for a full State Pension, which may help to fund part of your retirement. The current State Pension age is 66, however this will increase in the future, so check the UK Government website to see when you’ll be eligible. However, it is important to build up your own Pension pot and not be reliant on the State Pension, as this isn’t likely to be a sufficient amount to fund a comfortable lifestyle. It may be wise to view the State Pension as more of a basic financial supplement.

Lost and forgotten Pensions could help you to retire sooner.

A career often spans several jobs, and it may be the case that you’ve accumulated several Pensions throughout these. Given how easy it can be to forget about Pensions amid the clamour of changing jobs and busy lifestyles, as you approach retirement take a careful consideration if you may have Pensions elsewhere. You never know, even small amounts may have grown over time.

In an era of auto enrolled Workplace Pensions, it is even more likely that you may accumulate multiple Pensions through different jobs. Consolidating Pensions may be a good idea as it could reduce charges you pay, and give you one view of your retirement goal.
However, consolidation won’t be right for everyone, you may lose certain benefits that are unique to your Pension providers. You may be invested in Pensions with valuable benefits such as guaranteed annuity rates, protected higher tax-free cash percentages and low charges that would be lost on transfer. Speak with a financial adviser if you aren’t sure.

You don’t need to take your Pension in one lump sum.

You’ve worked for decades building up a significant Pension pot, but how do you go about withdrawing that money? In the first instance, consulting a financial adviser could be a good idea, as they’ll be able to assess your unique circumstances.

In most cases you can take up to 25% of your Pension pot as a tax-free lump sum, but you don’t need to take this all in one go, as long as you take your tax free cash in the same tax year. Consider if you are in a position to leave your Pension pot untouched for a period of time, as the 25% could be worth more if your investment continues to grow.

Some people choose to purchase an annuity which can provide a regular income. Others will choose a Pension drawdown account, leaving their investment active and taking money as needed. A financial adviser may be able to advise you on a sustainable withdrawal rate, whereby you take enough money annually to fund your lifestyle while still leaving enough of your Pension invested to preserve your Pension pot and potentially grow your investment.

It is worth noting however that as with all investing, the value of your pension will fluctuate over time and the fund value at the time you do start taking an income cannot be guaranteed.

A Pension can provide a legacy.

Your Pension could be an effective way to pass on a financial legacy. It isn’t usually classed as part of your estate, and as such isn’t normally liable to Inheritance Tax. However, your personal circumstances may mean your Pension isn’t the best way to leave a financial legacy, for example you may need to withdraw your Pension to cover the cost of retirement or care costs. If you do leave a Pension as a financial legacy you should also keep in mind that the person receiving your Pension will pay tax at their marginal rate of income tax if withdrawing the Pension.

With this in mind, it could be a good idea to name Pension beneficiaries within your Pension provider’s Expression of Wish form. This could help the Pension trustees to distribute your wealth to your chosen beneficiaries in the event of your death.

This could build intergenerational wealth for your family and ensure a lasting financial legacy.

Retirement will be one of the biggest decisions you ever make, so think long and hard over the above points. Speak to a financial adviser to get help with your unique set of needs and circumstances.

In addition to personal finance considerations, also consider factors such as your health and your outlook on life in retirement. It is a dramatic lifestyle switch, one which could have impact on purpose and identity. Think about what you want to do in retirement, what are your goals?

The most important thing to do is enjoy your hard earned retirement and continue to do more with your money by carefully considering your financial choices.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax is subject to an individual’s personal circumstances, and tax rules can change at any time. This blog is not personal financial advice.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

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