Whilst it’s important to start planning for your retirement as early as possible in life, in the run up to it, it’s advisable that you carefully consider options surrounding your pension and that, if possible, you seek professional financial advice to ensure you’re making the right decisions and that they’ll put you in the very best financial position. With this in mind, here you’ll find our five top tips for pension planning to give you some food for thought and areas to conduct research on for yourself on prior to speaking with a professional advisor regarding your finances as you approach retirement.
1 – Decide When To Retire & Take Your Pension
Whilst the default retirement age (formerly 65) has now been phased out, it is generally possible for most people to work as long as they want to. It is worth noting, however, that retirement age isn’t the same as State Pension age and that this can be anywhere between 61 and 68, dependent on gender and date of birth. You can’t decide to take your State Pension early, however you can delay it and, when taking into account personal pensions, a decision which needs to be taken is when to start taking a pension income. Retiring younger will generally receive a lower monthly pension income, however delaying when you take it will result in a higher income. It pays to make a personal decision as you approach potential retirement age as to when you feel ready to retire from employment based on personal circumstances including your health and living arrangements.
2 – Decide Whether Or Not To Take A Tax-Free Lump Sum
Up to 25% of pension savings can be taken as a one-off tax-free lump sum and it makes sense to decide whether or not this is something you want to take. Of course, taking this one-off payment does mean that your pension income will be lower, however it must be remembered that it is tax free. Between yourself and a financial advisor, you need to make a decision as to what works best for you financially. Most people do take the lump sum, however it’s important to then have a plan in place as to how you’ll use such a payment.
3 – Clear Your Debts
As you approach retirement, it makes sense to try and clear as many debts as possible. It’s well worth putting together a plan to ensure that you enter retirement with as little debt as is realistic or at least have a solution in place to make sure that monthly repayments can be covered on your pension income. It is, of course, possible to use the tax-free lump sum outlined above to clear debts, however only a consultation with a professional financial advisor will outline whether or not this makes most financial sense, based on the cost to take the payment and the like.
4 – Decide Upon The Most Suitable Pension Income
There are a number of different options available when it comes to taking your pension income and you need to make a decision as to the most suitable based on your personal circumstances. Do you have dependents who rely on your income? Have you taken inflation into account? Your circumstances both during retirement and following your death can have a huge impact on the most suitable form of pension income and it’s a decision which only you and your family can have the final say on. Again, speaking with a financial advisor about this will help you to understand the best form for you, however having a rough understanding as to your preferred option will make the process easier.
5 – Shop Around
In conjunction with your independent financial advisor, don’t be afraid to shop around to find the best possible pension incomes in the right format. It makes sense to start doing this as you approach retirement to be sure that you’re getting the very most from your pension in a way which works for you. At the end of the day, once you retire, your pension is likely your only form of income so it pays to shop around for the best deals to give yourself the confidence that your pension is in the right hands.
There is no doubting that there are a lot of decisions to make surrounding your pension as you approach retirement, however making the right ones alongside a professional financial advisor can have a significant impact upon your income in future years. Spend some time yourself researching the above points, make an appointment to see your financial advisor and trust us when we say that you won’t regret planning ahead for your retirement.
About The Author
Anthony Hoskisson is the Managing Director and Senior Financial Planner at Questa Chartered, a team of some of the most qualified financial planners in the Fylde region. Anthony specialises in protecting and increasing wealth for both private and corporate clients and is a strong believer that having the right information available is of primary importance during financial decision making.