10 things you need to consider for retirement
Retirement can last a long time, yet many people spend little time preparing for it. The choices you make at the start can impact the rest of your life, and sometimes the decision is irreversible. To have the most comfortable retirement possible, it's important to spend some time making plans and giving thought to your options, including talking to an adviser. After all, the best time to plan for your retirement is before it is about to happen, as it gives you more time to plan and prepare.
Here is our list of 10 things to consider for your retirement:
You don't need to do it immediately
You do not need to wake up one day and be retired; instead, you can reduce your working hours, perhaps working part time, so that you approach retirement gradually. Not only can this help your bank account, it also allows you to slowly adjust to working less and finding other things to do with your time.
You are allowed to defer the state pension
If your state pension age is before April 2016, your state pension will increase 10.4% for each year that you defer it, but this reduces to 5.8% if you reach state pension age after April 2016. This can be a sensible option if you are still working or do not need the pension yet. If you defer, you can take the accrued interest as a lump sum.
Pensions are not part of your estate, therefore not subject to inheritance tax
This may be inconsequential if you have a small fund, but with inheritance tax being applied to assets worth £325,000 (or £650,000 for a married couple) a sizeable pension fund could make you eligible for inheritance tax if the money was held in other ways, such as a savings account or property. This could be something to consider if you're thinking about cashing in your pension to invest in buy to let.
There are new retirement options
From April 2015, there will be new ways to take an income from your pension. It will be possible to remove money from your pension without committing the remainder of the fund toan annuity or income drawdown, and 25% of each withdrawal will be tax free. There will also be flexi-access drawdown, which will replace existing drawdown options and remove the limits on how much money can be taken at any one time. The new options can be confusing, so it's recommended you take regulated advice before making a decision.
Flexi-access drawdown has a lower annual allowance
Capped drawdown allows people to contribute £40,000 a year and receive tax relief, but flexi-access drawdown reduces this to £10,000. If you are already in capped drawdown when the change happens in April, your plan will remain the same and your annual allowance will be unaffected; if you want to later change to flexi-access drawdown you can do so, but you cannot change from flexi-access to capped drawdown.
Rules about passing on a pension have changed
From April, you can leave your pension to a beneficiary and if you die before the age of 75 they will pay no tax at all, and if you die after the age of 75 they will pay only their marginal rate on withdrawals. It will also be possible to leave the fund to any beneficiary that you choose.
Annuities aren't dead
Despite the big changes for pensions, annuities still exist and offer a guaranteed income for life. If income security is a big concern for you, then an annuity may be the most appropriate option.
A pension review helps you plan
A pension review is a healthcheck for your pension, showing you where it is invested, the fees you are paying and how well it has performed. By knowing these things, you are in a better position to plan for your retirement as you will have a good idea of how much money you will have. You are much more likely to have a strong pension if you know the details rather than relying on luck. If you'd like more information, you can read about our free, no-obligation pension reviews.
Your retirement plan can be flexible
Depending on how many pensions you have and the amount of money you have saved, it's possible to have a retirement plan that includes a deferred state pension, drawdown on a small fund or an annuity for security, with a boosted income from a larger state pension later on. If you own your own house, equity release could be a consideration and although this is available at 55, it often makes more sense later in life as less interest will accrue.
You may be entitled to certain benefits as a retiree
Some pensioners qualify for Pension Credit, which includes cold weather payments. This is in addition to the winter fuel payment given to most pensioners. If you pay council tax you could have it reduced, and from the age of 75 you receive a free television licence and may also be eligible for free prescriptions and other health costs. These all add up, and if when you retire you do not have a mortgage, car payments or children at home, you could be surprised at how much further your income stretches.
Retirement is about to be more flexible than it has ever been before. This means new opportunities but it also means there are more things to consider. There are risks associated with different products such as income drawdown and equity release, which is why it is imperative to obtain financial advice before making a decision. For more information or advice on planning your retirement, you can call us on 0800 304 7600.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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