It is all too common for people to work all their lives, paying into their pension at the end of every month, only to reach retirement age and realise, to their surprise, that the total pot they have built up is not as much as they had expected. This is hardly surprising when you consider just how much can change during 40 years of work. The economic climate is constantly changing, as is the lifestyle you become accustomed to. With that said, it is essential you review your pension every couple of years to avoid any nasty surprises, and ensure your money is being invested in a pension plan which is well suited to your specific circumstances.
Every couple of years, particularly as you draw closer to the age of retirement, you should ask you pension provider for a statement detailing the income you can expect when you retire. Depending on the risk associated with your pension plan, it is also well worth keeping a close eye on the stock market. If this begins to falter then it may be worth consolidating your pension pot by moving it to a less risky fund which invests more heavily in fixed interest bonds.
Make adjustments for the future
If you ask your pension provider for a statement of the income you can expect once you retire, and find that it falls short of the amount you need to live the lifestyle you desire, then you need to make some changes. Now is the time to act, so you should seriously consider increasing your monthly contributions.
Another option open to you which probably won’t sound overly attractive is to defer your retirement for a year or two, or alternatively, are there other methods of increasing your income? Another option is to continue to work on a part-time basis while drawing your pension. Further motivation to work past retirement age can be derived from the fact that your tax-free personal allowance will increase once you reach the age of 65.
Once you reach retirement age you are free to take 25 per cent of your pension pot as a tax free lump sum. The majority of individuals will then buy an annuity with the rest of the fund, which will provide you with a regular income for the rest of your life.
When choosing your annuity, it is essential you shop around to find the most competitive option. This is an important decision, as once you have chosen your annuity you will not be permitted to switch providers.
For further pensions advice, please call our team of experienced advisers on 1890 917 917.