18th August 2022
Tips For A Healthy Pension As You Approach Retirement Part 4
Today we will be looking at a further 2 things you might want to consider as your retirement approaches ensuring you are prepared for when the day arrives that you go into retirement.
HOW WILL YOU ACCESS YOUR PENSION?
If you have a UK Defined Contribution pension, you may be able to take some or all of your pension benefits as a lump sum as soon as you reach the age of 55. (age 57 in 2028 unless your plan has a protected lower pension age). This is referred to as ‘crystallising’ your pension. You can take a tax-free lump sum of up to one-quarter of your pension pot. The remaining balance can be used to provide a lifetime income or to draw on as needed.
However, there are some considerations you should make before proceeding. If you take all of your pension benefits as a lump sum, you will have less money to live on in retirement. This is due to the fact that any lump sum in excess of the 25% tax-free amount will be subject to Income Tax. Taking your pension fund as a lump sum has no effect on your State Pension, but it may have an impact on certain means-tested government benefits.
MAKE A RETIREMENT BUDGET
It’s no secret that retirement can be costly, especially with rising inflation. Aside from the obvious costs, such as housing and healthcare, there are a slew of other expenses that can quickly add up. Retirees have a lot of bills to pay, from travel and recreation to groceries and utilities. That is why it is critical to create a retirement budget. You can identify potential areas for improvement by understanding where your money is going.
A retirement budget does not have to be difficult to create. It should, however, include all of your anticipated sources of income as well as all of your anticipated expenses. Once you have a clear picture of your cash flow, you can begin making changes to ensure you can enjoy your retirement years.