Everyone is going to get to the point of having to stop work and retire. However, many aren’t equipped for what that means in terms of the pensions pot they’ve been building over the years. Portafina has put together advice for individuals that are fifty-five and thinking about taking out pensions soon.
What Are Your Options?
When you reach fifty-five, there are several things you can do with your pensions. This is especially true when you have the right pension scheme. Some examples of what you can do with your pension are as follows: accessing some or all of your savings, getting a regular income, or selling it to an insurance company if the sound of an income for life sounds good to you. The right option will depend on your circumstances, and what your financial plans for the future are. You’ll see each of the above options broken down below.
Withdrawing Tax-free Cash
There is a specific amount of money that you can actually withdraw from your pension tax-free. Having said that, some personal and workplace schemes limit the amount you can take out to 25%. As aforementioned, note that taking tax-free cash could affect the amount of guaranteed income you get from your final salary pensions.
If you decide to take money from your pension early but not before the age of fifty-five, this is what’s known as ‘pension release’. Whether it’s a personal, private or workplace scheme, you can usually release money. The exception is, that if you have a final salary scheme, you would need to transfer it to a personal pension before releasing money and this could mean losing valuable income for life.
For anyone that decides to start withdrawing income from a personal pension scheme, this is known as ‘pension drawdown’. The money could be withdrawn in regular payments or lump a sum as required.
Taking it in One Go
Some pension schemes will allow you to take out all of your pension in one go. However, if you can, it may be wise to keep some or all of your savings invested for a couple of more years.
Buying an Annuity
Selling your pensions to an insurance company in exchange for a guaranteed income for life is known as buying annuity. This is an attractive option if you want the security of a regular income once you retire. You should be aware, however, that annuities have dropped in popularity as they can be inflexible and rates have dropped in the past decade.
Taking Money Before 55
You should note, however, that in almost all cases, you won’t be able to take money from your pension before you turn fifty-five. You may be able to withdraw before this age in the case of critical illness.
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