Retiring in 2017: what you need to know
You're retiring in 2017. You're free! You can now officially do anything you like. And that doesn't just go for how you spend your time. It applies to how you spend your pension too. A raft of changes since 2015 mean you are now free to do far more with a defined contribution pension than ever before.
Of course, the flip side is that you need to know even more than you did previously. There are ten essentials that anyone with a defined pension contribution needs to understand well before they quit work for the last time.
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1. Gather the information first
Financial education provider WEALTH at work says you need to gather information on all your assets, including every pension as well as savings and investments. That way you know exactly how much you have to work with.
2. Look at your state pension options
There are ways to boost your state pension, such as buying top ups - which apply for women born before April 6, 1953 and men before April 6, 1951. These offer far better value than any annuity on the market, and can increase your state pension by up to £25 a week - so is well worth investigating. You can also get a higher monthly pension by delaying when you take the first payments.
3. Consider what you expect to live off
This shouldn't a vague idea about the kind of income you'd like, but a reasoned expectation based on your actual living expenses and plans for the future. There's a useful calculator for this on the Money Advice website.
4. Consider very broadly whether what you have comes close to matching what you need
It's not a cheerful prospect, but if you're a long way short, then your plans to retire completely in 2017 may have to change. By working for a few more years, you simultaneously increase your income, and reduce the amount you need to save, so you can close the gap faster than you may think.
5. Understand all the options open to you
Either speak to someone or read up on the many different types of annuities available - plus income drawdown - so you understand what each one entails, the pros and cons, and the costs involved.
6. Appreciate it's not a black and white choice
You don't need to put everything into annuity, but you don't have to rule them out entirely. You could, for example, buy an annuity to cover essential costs, and consider drawdown for one-offs and discretionary spending.
7. Consider tax
Usually 25% of your pension is tax free and the other 75% is taxed as earned income. Consider how to withdraw the cash for the best tax benefits. So, for example, you may be able to take a smaller amount of money from your pension and more from ISAs, as this cash can be released tax free.
8. Check the paperwork
One common issue is that people don't keep their beneficiary details up to date. In 2015 the Chancellor abolished the tax payable on pensions left untouched if you die before the age of 75, so you need to make sure the cash goes to who you intend.
9. Consider getting advice
The cost of getting advice can be off-putting, but consider the value you get from ensuring you don't make a catastrophic or expensive mistake. It may well make the cost of advice one that's worth paying.
10. Be aware that you are a target for scams
Scams don't look like scams. They look and sound legitimate, which is why people are hoodwinked. They often have very professional looking websites and literature. Whatever you are planning to do with your retirement savings, check before you do anything that the company is registered with the Financial Conduct Authority (FCA)
How we spend our pensions
How we spend our pensions
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