STEP 3
Do you need all your tax-free cash? Could some of it be utilised better to buy extra income in retirement?
Find out how much tax-free cash you are entitled to.
Work out how much of the lump sum is available for investment, after deducting amounts that are actually needed for other important purposes, such as paying off debts.
Find out how much extra retirement income you could get if that remaining lump sum were used to buy an annuity.
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STEP 4
What about your appetite for risk.
Are you willing to put some of your pension savings at risk in the hope of achieving a higher income in the future, such as in an income drawdown plan?
What is the minimum level of income you will need to meet essential expenses?
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STEP 5
Create yourself a retirement income plan.
Decide on the strategy you will follow (for example, buying an annuity, income drawdown, phased retirement) and the investment approach you will take with any assets that are not used to buy an annuity.
Work out how much income you will be able to generate from your retirement income plan. If it is not enough, you might have to reconsider your plan. Maybe you don’t need to spend your tax-free lump sum immediately. Perhaps it can be used to generate a bigger income.
If you are going to buy an annuity, then shop around. Use the open market option; your pension provider may not offer the best annuity rates and you cannot change providers after purchase.
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In Conclusion
Retirement brings with it many welcome distractions – not working, holidays, a new car, that sort of thing – but individuals must remember to give their pension arrangements plenty of time and thought too. Doing this well in advance of retirement is important.
Making the wrong decision can be financially disastrous. Mistakes made at this important time are often impossible to correct and even ‘safe’ choices can present problems if things do not go to plan.
