Saving for retirement takes a good few decades of hard work. Four to six months before your retirement date, you should begin to track down all your pension pots and think about what you would like to do with them. Choosing the right option can help you save more money and help you identify pension scams that illegitimately pose as a pension choice.
There are a few options to choose from when it comes to choosing your pension rate. They are:
- Temporarily leaving your pension and claiming it later.
- Securing a guaranteed income for the rest of your life (otherwise known as a lifetime annuity).
- Taking smaller cash sums.
- Using the pension to provide a retirement income.
- Claiming your whole pension pot as cash.
- All of the above in a mixed strategy.
The first 25% of any pension income is tax free, so it’s important to choose the right method of receiving your pension. In broadly simplistic terms, these can be generalised to either a big lump sum or a small lump sum. There are general benefits to each method, and either way is beneficial depending on the receivers financial and personal circumstances.
A big lump sum is beneficial to those who want to pay off credit card debts, property mortgages, help their children, or want more general freedom with their income. This is the option for those wanting to spend much of their pension fee and enjoy retirement, with fewer financial concerns or living costs to seriously consider or hold them back. Of course, a risk in choosing this option is spending too much and depleting all the money owed to you.
A smaller lump sum supplies the recipient with a substantial monthly income, allowing them to keep up with their living costs for the rest of their lives. This suits those who do not have as much money to splash out, but nonetheless ensures that they are able to get by until they pass away. This method can also come in the form of a joint life annuity, providing an income for a nominated beneficiary once you’ve passed.
In the end, you’ll need constant consultation with the experts to help you avoid pension scams and secure the best rates. More choice means more responsibility and weight with each consideration, so it’s important to get it right. Legitimate companies such as Hymans Robertson can discuss what pension is best for you in greater detail, and ensure you get the best deal for a brighter retirement period.