Preparing for your retirement
You’ll need to consider your anticipated income in retirement, including your pension and any savings or investment income. As you get closer to retirement, you should be in a better position to judge just how much of a lifestyle change you want.
Some people want to ease into retirement by continuing to work on a part-time basis. Others may find that their previous dream of retiring overseas no longer seems desirable (or affordable) given the current state of the economy.
Plans change over time and you may find that as you approach retirement you previous expectations for retirement no longer ring true, which is why you should start you preparations a good few years before your retirement. You may also find it helpful to get some independent financial advice so that you can adjust your pension and investment planning as appropriate.
An imminent retirement
If you have been saving for you retirement with a money purchase pension scheme (from either your employer or a personal pension plan you should start to research your annuity options [link to annuity article]. This should start at least/around six months before you need to make a decision and purchase the annuity, and is known as the open market options. [link] When it comes to buying an annuity it pays to do your research and make your choice carefully.
With annuity rates so low, you may want to hold fire on an annuity purchase for awhile and opt for an Income drawdown plan [link] instead – especially if you have a large pension fund. This will keep your pension fund invested, with you able to draw off an income from the fund to support your retirement.
You will also need to think about whether you want to take a tax free lump sum from your pension pot or use it all to purchase an annuity. You can take up to 25% of your pension fund as a lump sum, but it will significantly reduce the amount you can put towards an annuity.
The same applies to those lucky enough to have a final salary pension, as many scheme also let members take a tax free lump sum on retirement. Of course they’ll need to weight up the advantages of taking out a lump sum and possibly reducing the amount of pension they’ll get in retirement. Both HRMC and final salary pension schemes have rules about taking a lump sum, so you check you scheme’s rules and may want to get some financial advice before you make a decision.
Claiming the State pensions
Of course your occupational pension isn’t the only one you need to thinks about. You’ll also need to claim the State pension and any applicable pension benefits. Remember, you dont have to claim your State Pension just because you’ve reached the State Pension age. If it suits your circumstances, perhaps because you are still working, you can delay claiming the State pension for a bit. This may come in useful when you finally do decide to stop work.
Get some professional advice
The decisions you face as you approach retirement are some of the most important of your life and will underpin all of your finances in retirement. From helping you through the selection and purchase of an annuity to investment advice for a lump sum from you pension you will find it helpful to get guidance and impartial advice as you prepare for retirement.
This is where an independent financial advisor can be invaluable helping you through the difficult choices you face as you near retirement. To get in touch with an independent financial advisor fill out the form below.