If 2019 marks the year that you turn 55, or perhaps retire, you might be thinking about how you are going to support yourself financially?
It’s an important decision and there are a lot of factors involved to make sure that you have enough to live on in retirement. It is vital to carefully work out your income and expenditure needs in retirement.
One flexible method of accessing your personal pension pot is to use income drawdown – but sometimes it can be difficult to understand exactly what this means and how it will affect you? Below we briefly cover what an income drawdown is.
How does it work?
Income drawdown is a way of using your pension pot to provide you with a regular income and/or lump sum withdrawals, instead of using your pot to buy an income (an annuity) from an insurance company.
This is a more flexible option but it does mean keeping your funds invested and, unlike an annuity, the income is not guaranteed for life. However, the funds will continue to benefit from any growth.
How to make it tax efficient?
25% of your pension pot can be taken tax free but your pension income will be taxed just like any other earnings, after personal tax allowances have been taken into account. Use of allowances around the tax year end and start and how income/withdrawals are taken need very careful consideration. The best way to make income drawdown tax efficient is to take advice from a pension specialist.
Since pension freedoms more people have taken the option to drawdown on their pension pot which has given them greater flexibility as to how much they take and the frequency.
None of us will live forever and when the time comes we want to provide for our loved ones. An income drawdown arrangement allows for your pension to be passed down to the people you want to benefit from it, such as friends and family. The most important thing to remember is to list your nominated beneficiaries and let all of your providers know who they are.
As the pension pot will remain invested its ongoing value will be dependent on the underlying investments. The pot could be depleted by poor investment performance, or by taking too much income out of the fund – income is not guaranteed.
People’s circumstances differ and what is right for some won’t be right for others. It is important to assess your attitude to risk and volatility, the last thing you want to do is to take too much early, leaving you with not enough to live on in retirement.
Pension drawdown requires a lot of planning to take into account all of the above, so it is not to be entered into lightly.
How Pensionlite can help you?
Our team of expert pension specialists will provide you with advice in a convenient and detailed recommendation report. This is in an easy to read format and will be based on your current financial circumstances and aspirations.
If you would like to speak to one of our pension advisers contact one of the team today. We will communicate by post, email, text and phone and are always on hand to answer your questions.