If you are coming up to retirement take pension advice . Our financial advisers use cashflow planning to achieve your goals.
Make sure your retirement is affordable and sustainable by using cashflow planning
Retirement, and the associated ceasing of the ability to earn an income, can be a scary thought and is certainly a huge decision. Understanding the effect of inflation on your income needs throughout retirement (at 3% inflation your expenditure will double over 24 years) and other significant capital requirements needs more than a “finger in the air” analysis.
At Lonsdale Wealth Management, we utilize cash-flow planning tools to help clients understand whether retirement is affordable and just as importantly, sustainable. Once affordability has been identified, decisions on the most effective way to generate retirement income can be made. There are more choices than you might think!
Look for secure and flexible income in retirement
Retirement Income is divided into secure income and flexible income. Secure income would include Defined Benefit Pension Schemes, the State Pension and Pension Annuities. Flexible income includes Pension Drawdown and income from capital and investments, with rental income classed between the two, as it is secure but can be subject to void periods.
You can currently access your defined contribution pension savings any time after age 55 although the minimum age is expected to increase to 57 in 2028 and remain 10 years below state pension age thereafter.
What are your pension options at retirement?
You have five broad choices and for each option, 25% of your pension savings can be paid tax-free:
Exchange your pension savings for an annuity provided by an insurance company which is then guaranteed for the rest of your life (with options including a dependent’s annuity). Annuity income is subject to income tax.
Secure Income -Temporary Annuity
Little known but can be very attractive for those who want to retire early. Can provide a higher guaranteed income for a specific number of years (perhaps until other pensions such as the State Pension commence) to allow the balance of pension funds to remain invested. Annuity income is subject to income tax.
Take income as Flexi-Access Drawdown
Take the income you need when you need it. The money remains invested and you draw a variable level of income for as long as your money lasts. Withdrawals are subject to income tax.
Cash Payment as a lump sum
Have all your savings paid as a cash lump sum, with 75% of the fund subject to income tax.
Leave your pension pot for now
There is no requirement to draw your savings from your pension and the fund can be passed down to a nominated beneficiary (and through different generations), often outside of your estate and therefore exempt from Inheritance Tax. The 25% tax free lump sum is lost if not taken during lifetime, but your funds can be paid tax-free on death before 75 (taxable on death after 75).
Howard Goodship, Independent Financial Adviser, Ringwood, Hampshire said:
'As you can see, there is now significant choice available and pension savings are another tax advantageous wrapper to consider alongside other tax efficient products including ISAs. We are available for an initial, no obligation chat to discuss and consider your personal situation, aiming to help achieve the most tax-efficient and sustainable outcome. Alternatively please complete our website consultation form and we will call you. For more information about how we help people coming up to retirement with their pension planning please read our brochure on Your Retirement Options or review our retirement planning page.'
Howard Goodship is an Independent Financial Adviser with Lonsdale Wealth Management, 5 Friday’s Court, Ringwood Tel: 01425 208490 www.lonsdaleservices.co.uk
For more information on pension options and retirement planning you may find the following articles useful
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The contents of this article are for information purposes only and do not constitute individual advice. The Financial Conduct Authority does not regulate Cash-flow planning or tax advice.