Retirement is the most important stage in our life, where we seek comfort, peace, and security. But, not all succeed in achieving all this. Reason? The sole reason is poor financial planning. A relaxed, worry-free and happy retirement life requires you to be prepared as early as possible with a robust financial plan. This requires you to understand different pension types, have a regular pension review and most importantly consult with an expert.
When it is about pension, most people settle on any random pension pot and don’t look back until retirement time arrives. However, to ensure a better retirement life, you must keep checking your pension pot. And, identify how much of your pension savings can provide you with enough retirement income that you think you will require after quitting the work life. Once you understand this, you can decide if you are ready to retire or not. Let’s help you work out your potential retirement-income through pension, with this quick guide.
Know Retirement Income Estimates
First of all, you should identify the estimated retirement incomes you will get through different pension options.
If you have arranged the best pension plan on your own, also known as money purchase pension or defined contribution, you will get the details through the pension provider through an information pack. This will inform you about the total money in your pension pot and available options to take out money. The information pack will also inform you of potential income you can expect from the pension pot when you use it to get a guaranteed income also called an annuity.
Note that, you will receive the information pack only when you are four and six months away from retirement. Otherwise, you check your most recent annual pension statement to know your pension pot estimate.
Salary Related Pension
If you are working at an organization and have signed their defined benefit pension schemes, your employer will notify you a few months ahead of your retirement, about how much pension you’ll receive. They might ask you whether you want to receive a part of your pension as a tax-free lump sum. And if so how much you wish to receive.
It would help if you also considered the state pension for your retirement income. If you are about to reach State Pension age, the Pension Service will send a letter to you informing you about how to claim your State Pension.
If you already qualify for a State Pension but haven’t received a State Pension statement, it is good to get the one. A State Pension statement will inform you how much State Pension you’re entitled to depending on your present record of National Insurance credits or contributions.
Jot Down Key Details
Once you have an estimate of income through each of your pensions, write down the key details, such as:
The retirement dates for pensions.
You’ likely monthly income if you want to buy a guaranteed income. Even if you don’t want to buy a guaranteed income, it is good to find out how much you could make from one. This will let you compare different options of taking money from your pension.
How much you could take out annually from the pension. Or Which pension pensions you want to vary taking flexibility. Make sure that your pensions need to last throughout your retirement period. If you withdraw money quite early, you may lack money in retirement.
Different options for taking out tax-free cash and the maximum amount of money you can withdraw.
Calculate the Tax
Sum up all of your income estimates to know your total income. Once you know total income, find out the total amount of tax you may need to pay on this cash. This will further help you decide how much income you can expect in retirement.
Know and Claim Your Entitled Benefits
After your retirement you may be entitled to certain additional benefits or your existing benefits may have changed or improved. You must keep checking these benefits to make most of them. Some of the benefits that you can claim once you qualify for State Pension are:
Pension credit that top-ups your retirement income to a minimum level.
Attendance Allowance (tax-free) that you can claim if you have a medical condition or illness.
Other benefits that help with heating costs, Council Tax, and Cold Weather Payments.
Seek Expert Assistance
Planning your pension and retirement income is not as easy as it seems. You must have a proper understanding of all different pension pot options, benefits you are entitled to, taxes affecting your income and ways to reduce it. Financial planners have an in-depth knowledge of all such aspects. They can help you improve your pension pot and total retirement income by suggesting the best solutions and tactics. Therefore, consulting with an expert finial advisor is always a wise idea. You can also reach financial advisors who offer free pension advice.
On a Final Note
If you wish for a financially worry-free and happy retirement, you must start planning for it now. No matter what’s your age, planning your retirement is an intelligent way to secure your and your family’s future. From getting the best life insurance over 50 to identifying your exact retirement incomes, you should consider every aspect before stepping into retirement.