Taking Out Your Pension

What To Do As You Near Retirement? 

Most of us start thinking seriously about when we’d like to retire as we approach our mid fifties.  We’ve worked hard and we’re looking forward to spending quality time during the next phase of our lives. 

The age we can retire has changed significantly during the past few years.  For many years the state pension age was 60 for women and 65 for men until the Pensions Act in 2011 brought in changes to align women’s state pension age with men’s.  

Today the pensions scene is very different. The stage pension age increased further to 66, then 67 for men and women, and is expected to rise again to 68 in 2037.  

Then, with the new pension freedoms introduced in 2015, the age you can now access your workplace and private pensions changed to 55, giving us much more flexibility in the lead up to retirement. 

So now we have more choice, when is the right time to retire? And when you’ve set the date, what do you need to do to get ready to take out your pension?

What age can I retire?

There is now no upper age limit for retirement. You can choose to retire any time after 55.

There may be no good reason to carry on working after 55. You may have no dependents, paid off your mortgage and accumulated enough in your pension funds to live on comfortably for the next 30 years or so.  

Alternatively, you may feel 55 is too early to stop. You may still have children in education, have a few more years left on your mortgage and other debts to cover.  So early sixties may feel more realistic.

Maybe you don’t see yourself giving up work before you reach state pension age,  If you’re Self-Employed or work part time, this may be a real option for you.

If you’ve not been able to accumulate enough money in your pension pot during your working years, you may need to carry beyond state pension age to increase your pension contributions and receive more pension income.  

Alternatively you may enjoy having the routine of going to work and decide to carry on working part time, so you have time flexibility and the benefit of an income to supplement your pension.

You may need to retire early due to ill health and there will be some options for you if you need to do that.

Planning ahead is everything when it comes to retirement. Turning an idea of what retirement could look like for you into actual reality takes careful thought and calculation.

Your budget

If you haven’t already calculated how much you will need to live on during your retirement, now’s the time to do it.

Take the time to carefully work out what your monthly expenses will be and write down all your direct debits and standing orders.  That should include mortgage or rent payments, your utilities and council tax, tv licence, broadband, mobile phone costs and gym membership, etc.

Build in what you spend on food, eating out, having your hair done, and entertainment.  Think about how much you spend on gifts for family and friends.

Then add how much it costs to run your car, MOT, annual servicing and repairs, plus other travel expenses.  

Build in some contingency too.  How would you pay for a new boiler if you needed one or some other unexpected expense?

How long will you live?

It’s a known fact that we’re living longer, but how long?  According to the Office For National Statistics, current life expectancy for men is 79.4 years and 83.1 years for women.  

Of course some people live longer than that.  The oldest person living in the UK today is 112.

So pension wise, thinking long term, will the money you have in your pension pot be enough to see you through all the years of your life?

Just based on the average life expectancy, if you retire at 55, you will need your pension income to last for at least 25 years. 

Now is the time to get some good financial advice so you can find out how much your pensions are worth today so you’ll have a good idea how much pension income you could receive on day one of your retirement.  

An experienced pensions advisers we will be able to forecast how long your pension income is likely to last.  If there is a shortfall, they will advise what you can do to plug any gaps now to increase your retirement income.

Taking out your pension

There are many things to consider when you are ready to retire and take out your pension.  

Financial advice is advisable at this point and is required by law when it comes to moving pensions from one fund to another.  

It’s also time to be aware of pension scamming, so it is important if you are discussing your pensions that you only do so with a reputable pensions specialist you know you can trust. 

Making the most of your pension pots

As time has progressed you may have accumulated a number of workplace pensions and personal pensions.  By this stage you may have been advised to transfer some of these into a personal pension scheme.

You may also have some defined benefit (final salary) pensions about to mature.  If this is the case, it’s time to consider whether to transfer these to an income drawdown style of pension, or buy an annuity that will give you a guaranteed income for life.

Taking tax free cash 

Over the years you will have benefitted from the 20% tax relief paid into your pensions by the Government.

From the age of 55 you can take tax free lump sums of cash up to 25% of your total pensions value.

This gives you the option to use these larger lump sums to make your life easier as you move into retirement, such as paying off your mortgage or other debts, or perhaps make some adjustments to your living space.

It’s important to be aware that you will pay income tax on your pension income on any drawings you make over and above the 25% tax free cash.

Your state pension – Have you earned enough?

If you’ve paid national insurance contributions for more than 35 years, you’ll be entitled to the full state pension of £175.20 a week by the time you reach state pension age.  If you’re not sure go to the state pension forecast calculator on Gov.UK.

How can Spectrum help?

Talking to us at this important pre-retirement stage means having the benefit of our pensions expertise and knowledge.  We can help you make the most of your pensions and boost your retirement income.