If you are contemplating retirement, you will need to discover how you will fund retirement and where income will come from, including how much that will be. You may also have several decisions to make.
How Will Your Spending Change?
You will have to think ahead about what your expenses might be upon retirement. For example, you will not need to purchase work clothes or have a travel budget for your job, but you might have higher fuel bills and extra expenses for entertainment in your spare time.
You will have to plan a budget to help with money management. If you plan on retiring early, you will have to consider that your pension will have built up for less time and will be paid out for longer so you may end up on a lower income than expected, and you will have to ensure your budget will meet these considerations. You will have to take steps as you approach your retirement to be certain you get all of your entitled pension and benefits.
Discover What Your Pension Options Might Do
Some pension schemes may have additional rules about when you can receive your benefits, aside from the minimum age at 55. You might be able to get a basic State Pension, and perhaps an additional State Pension, if you are at or above the State Pension age and you or your husband, wife, or civil partner, have either paid or been credited with enough National Insurance Contributions.
If these contributions have a gap in their record, you can top these up, though if you have taken time out of paid work to have children or become a carer, these rights may have already been protected. You should look at your State Pension forecast. You will receive your invitation to claim State Pension four months before you reach the state retirement age. You can also delay claiming it or choose stop claiming it for a time, allowing a build up of income or a taxable lump sum.
Your options for pension from your employer depend on your pension scheme provided through employment. This could be occupational defined benefit, salary-related, defined contribution or money purchase scheme, or Group Personal or Group Stakeholder Pension plan. You might be allowed to continue working while taking your pension if the rules allow this. If your pension is defined by investment, your income could be affected.
In addition, if you were self-employed or your employer didn’t offer a scheme, you might have taken out a personal or stakeholder pension, both of which are money purchase schemes, dependent on investment returns.
You can begin drawing on these schemes while still working. If you have private pension schemes or pension schemes within other jobs, you should contact the companies or the Pension Tracing Service to track them down. You may also have a personal or stakeholder pension if you contracted out of the State Second Pension, previously SERPS.
You have the option of taking up to 25% of your pension as a tax-free lump sum when you retire, or leave it in your pension fund. After this decision, you would typically covert your fund to income, usually by purchasing a lifetime annuity. You might consider a joint-life annuity.
If your pension scheme is salary-related, you will not have to purchase an annuity. Your payments will instead be paid directly to you. If you do purchase an annuity, use the open market option (OMO) to shop around.
What Benefits and Financial Support Might You Receive?
Your income will be likely to decrease when you retire. On top of the State Pension, you might qualify for the State Second Pension, previously SERPS, depending on your financial circumstances. In addition, you may be able to get a Pension Credit, again depending on your financial circumstances.
How Can You Claim Back Tax and How Will You Be Taxed?
You will have to pay tax on any income received from your pension fund. You might pay less tax when you retire, so it is important to ensure you do not pay too much tax. If you are living on a low income, you might qualify to claim back any tax paid on savings interest or past pensions. You could also register to have interest on savings paid without tax, if you are on a low income. If the amount of money you have when you die, minus the amount you owe (your estate) is above a certain amount, you will have to pay inheritance tax. If you have left money invested in your pension fund, this can also be used as inheritance, after a 55% tax.
What Sort of Insurance Might You Need?
You might own life insurance, but you will need to look over your plan and think about other ways to protect family and dependents. It is important upon retirement to review your insurance plans and discover what is best for your circumstances at the time. You may be entitled to discounts if you are over a certain age and should shop around.
How Can You Ensure Maximum Income?
You might consider an emergency savings fund, shopping around for the best savings and investment accounts, including taking a look at those who might be tax-free. You could also get independent financial advice to maximize your income. If you have savings accounts you have forgotten about, you should trace them. An example of this would be moving house and forgetting to let your bank know. You should also trace any investments or insurance products you may have forgotten about. If you need to, or want to, you might consider still working.
Finally, making a will is important to provide for your family, as if you die without a will, the law will determine where your money and assets go. This can also make sure you don’t pay too much inheritance tax. If you have one, you should review it occasionally to ensure it is up to date. You might appoint a friend or family member to administer your estate as an executor of estate, or use a professional for this service, though this carries a charge.