> |
Why do you need a Pension?
Thinking about retirement is often low on the list of life’s priorities. Numerous financial commitments frequently trump a consideration of future needs; sourcing the income for the mortgage, household bills, children and other everyday essentials means that it is no surprise that saving for the future often gets overlooked.
Financial Needs
However, a person will still have financial needs beyond the age of their retirement – even the cost of a daily newspaper or a weekly grocery shop can add up over a year. Often post-retirement plans include travelling, enjoying new hobbies or simply taking the opportunity to take in life’s luxuries. Retirement also gives us a lot more free time, which we will often fill with activities that may cost money.
Serious Choices
Whatever the goals are, serious choices will have to be made and the sooner such choices are made the faster the freedoms that retirement affords can be enjoyed. If a person wishes to enjoy a higher or even the same standard of living after they cease to be an active member of the workforce, they need to plan for their retirement in advance in order to have an adequate income in retirement. Forward planning offers peace of mind that you have planned well for your future and will be financially stable when you get there.
Short Delay
A pension plan will assist in providing this certainty and, given that even a short delay can affect the amount received upon retirement, the general rule is that the earlier contributions are made, the better. By thinking about pension plans now, much of the anxiety surrounding the affordability of future plans can be reduced. If a person is thinking of retiring they will need to take into account where their future income will be coming from and how much it will be.
Financial Choice
A crucial financial choice to be tackled is how the pension fund is to be converted into income. Although this decision need not be made until retirement is approaching, it is important to consider carefully what the right option is for a person’s specific circumstances. A pension fund can provide a tax-free lump sum payment upon retirement (normally up to the value of 25% of the fund’s value) while the amount of any regular payments will depend on the size of the fund that has been built up and the annuity rates on offer at the time of retirement.
Retirement Options
Factors such as health, age and additional sources of income may also have an impact on retirement options. Attitudes toward investment risk, the balance between lump sum payouts and regular income and what will happen to your fund when you die are all considerations that will shape the choices you make when choosing your pension plan.
It should always be kept in mind that any returns are not guaranteed – the value of a pension fund may fall as well as rise leaving a person with less money upon retirement than initially invested.
Consultation with an IFA is recommended in many situations as the professional will be able to assess your personal situation and goals and advise you accordingly.
ASK OUR EXPERTS about your Pension needs
Related Articles
