Your options for early retirement
It is important when assessing early retirement options that you assess the benefits of working further years against enjoying early retirement now. With good pension planning many people have the opportunity to take retirement early. This may be due to positive unexpected market performance, or repaying debt or other commitments sooner than expected.
Many clients are often offered early retirement from employers to make job opportunities available for further working colleagues. This is great news, but you must calculate financial implications of taking retirement early.
If able to achieve retirement early, you most assess the income you will have from the point of retirement onwards. It must be enough to provide a healthy level of income for the duration of your retirement.
You must acknowledge future living costs or one off costs and ensure that you are making the correct decision. It is our opinion that if possible every client should retire as early as possible. However assessing future income, and planning accordingly are very important.
If you have the opportunity to retire prior to a previously agreed retirement age, or you would like to assess your current provisions in order to ascertain the potential income in retirement from existing pensions, or other income-generating assets, then contact us at Principle First. We regularly complete such assessments for clients so that they make an informative decision.
If you are approaching early retirement and would like an informal discussion on your early retirement options, contact Principle First on 0800 678 5929.
The options
1. You convert your hard earned pension value to an annuity
The majority of clients that build a pension through their working life will purchase an annuity at the time of retirement. They will agree an annuity rate with the insurance company they are with and this will be there income for the rest of their life. For example. Joe Smith has a pension with “Insurance Provident” (Example Company). Joe decides to retire at age 60, and Insurance Provident agrees to pay 4.8% of the £100,000 per annum for the rest of his life, (£4,800 per annum).
When converting your pension pot into an annuity the most important point is to use your open market option. This allows you to talk to an Independent Financial Adviser, such as Principle First, and allow them to take the £100,000 to the market, and try to get the best income from your pension. On the above example with the correct advice you may get £6,000 (6%) per annum, compared to 4.8%, £4,800 per annum. You only get the one opportunity to do this - once you have agreed with an insurance company, there is no going back.
Another option that may suit many people upon retirement is using their pension savings to set up an income drawdown arrangement.
2. Income drawdown
Income drawdown allows the saver to take an income from the pension pot, without having to convert to an annuity. It also allows you to benefit from further market growth until such times as you take your savings out of the markets. To make use of an income drawdown facility you do require further pension advice, but if suitable is well worth considering.
3. Use existing investment for an income
When retiring early, you should assess all investments or assets, not just your pension provisions. For example, if you have £80,000 in various investments, it may be more tax efficient to group these together, and take a 5% tax deferred income from the capital value, rather than dip into the monies as and when. Investment advice should be different and more focused for income, if you decide to retire early. Solid investment advice is a must, in conjunction with pension advice.
4. A mixture of all of the above
For many people calculating income in retirement, will involve an analysis of all assets. Retirement options, and retirement advice should be in conjunction with all other areas of financial. Estate and inheritance tax planning is often a priority at this stage of life.
For financial advice on early retirement or retirement options in general, please complete a pension enquiry. Principle First would be happy to provide pension & retirement advice.
