When you’re gearing up for retirement, there’s lots of information out there to help you make life-changing decisions. The problem is, not all of it is true. So, how do you know what to believe?
As expert financial advisers, we’re here to help you sort fact from fiction and set you up for success. Let’s start by setting the record straight on these five retirement planning myths.
Myth 1: I can’t draw a pension and keep working
Actually, you can. But if you do, it may limit how much you can add to future pensions. Be wary of inadvertently moving yourself into the higher tax bracket, which is 40% when your total capital income exceeds approximately £50,000 per year.
Myth 2: Pensions should be my first source of retirement income
Quite the opposite. Your pension is actually outside of your estate and therefore not subject to inheritance tax. So, you’ll leave your family better off by drawing down your savings and other investments before you raid that pension pot. Still, don’t leave yourself short of cash in the bank – you never know when you may need it!
Myth 3: My tax-free cash limit is 25% of my pension
Not necessarily. Old pensions or those you started with an old employer may allow you to draw more than 25%. Dig out the most recent statement you have for old pensions and contact your provider to check how much tax-free cash you’re eligible for.
Myth 4: I can retire now because my retirement plan is mapped out
Perhaps – but are you sure? Life has a habit of surprising us – falling stock markets, the death of a partner or changes to lifestyle. It’s worth stress testing your numbers against various ‘what ifs’ and catastrophe scenarios, so you can make retirement decisions confidently.
Myth 5: I’ll never exceed the lifetime allowance for pension savings
Well, you might. If you’ve been in a final salary pension for most of your life, you may be pushing (or going over) the lifetime allowance without knowing – leaving you with an extra tax charge. Contact your pension department to find out where you stand and factor in any other pensions you’ve accrued along the way.
Get advice you can trust
As experienced chartered financial planners, we’re here to make your journey to retirement an easier and more rewarding one. Contact us or learn more about how we can help you make your retirement goals a reality.
Author: Stuart Ferris, Associate Director and Charted Financial Planner.