Pensions tips: What to do in your 50s
Following our posts on how to plan for retirement in your 20s, 30s and 40s, this entry looks at what can be done in your 50s.
The actions you take for your pension in your 50s depend on what happened in your 40s. As we explained in our last post, a 40-year-old may have had multiple jobs and have more than one pension pot as a result. If these have been traced and acted upon, such as consolidated or moved to better performing funds if necessary, and the risk level is one you're comfortable with, then there will be little to do in your 50s. Given that the pension can be accessed in this decade though, and there is less time to rebuild the fund should a risky investment turn sour, you may decide that for your circumstances your investment strategy should be low risk.
If you have a personal pension you can legally release up to 25% of it tax-free once you turn 55, as long as you are not already drawing from a pension and the fund has at least £10,000. This is a very popular option and is often used to clear debts, tackle the mortgage or carry out home improvements. For people paying a considerable sum of money each month in debt repayment, using pension release to reduce or clear it can help a pension income stretch further as it isn't being swallowed up by debts. The remaining money in the fund remains invested until you retire. This option requires professional advice though, as it's important to understand the potential impact of reducing the size of your fund.
Pension release is not possible with defined benefit pensions, as they provide a fixed income throughout retirement. This type of pension is typically issued in the private sector, and the only way to release cash is to transfer it to a defined contribution scheme, which is not the best option for everyone. The government has also recently announced new legislation to the transfer of final salaries, so only funded ones will be allowed to be moved to a personal pension - unfunded ones, such as those of teachers and emergency services, will be prohibited from transfer. The consequence of this is anyone in an unfunded final salary pension who doesn't transfer out before the deadline will be locked in, and unable to withdraw any cash from it.
A pension review is essential in your 50s, and if it transpires that the fund is smaller than you had anticipated, or not big enough to support the retirement lifestyle you had hoped for, then you should look at ways to boost it over the next 10-15 years. Other options include starting other savings, such as an ISA, or paying for extra state pension if you don't have a complete National Insurance record. The best options for your circumstances can be explained by the professional adviser at the pension review.
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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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