Will I have enough personal pension if I retire early?
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I’m 62 and would like to retire now, rather than wait until I’m 66. I’m self-employed and have a personal pension that’s worth about £300,000. How can I work out whether that’s enough to give me a decent income if I stop building it up four years early?
Jeremy Woodruff of Smith & Pinching responds:
There’s no quick and easy way of answering this question: it depends on a number of different factors such as what level of income you want to achieve, what your family circumstances are, what your expenditure in retirement will be, and so on.
Having said that, retiring four years early will, of course, have an impact on what you can achieve with your pension savings. However, there are potential opportunities to mitigate that, such as making a larger pension contribution – which would attract tax relief – in your final year of working.
I recommend that you meet with an independent financial adviser from a firm of Chartered Financial Planners – the highest designation for firms in the UK – and talk through your plans. That would involve a detailed analysis of every aspect of your finances which would enable us to demonstrate the difference retiring early might make. We use your financial data in a software tool called Lifetime Cashflow Planning to plot your finances over time using different scenarios. It’s a great way to enable you to understand what difference changes to your plans will make.
An independent adviser can also help you explore the different ways in which you can access your pension savings to produce an income. You will almost certainly have the option to take a tax-free pension commencement lump sum which could be up to 25% of your fund, if you so wish. A pension income can be arranged using flexi-access drawdown – where you draw income directly from your invested fund – or by purchasing an annuity with some or all of your available fund – or a mixture of both. The solution that will be most suitable for you will depend on your circumstances, so a discussion with your adviser will help clarify what steps you might take.
Any opinions expressed in this article do not constitute advice. 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.
For more information, please visit www.smith-pinching.co.uk