Pension freedoms – Revolution, game changer, saviour of pensions OR the road to financial ruination?

 

‘Pension freedom’ or ‘pension drawdown’ was no doubt a game changer.

 

For the those retiring and has been a very positive change in how pension money can be accessed.

Get it RIGHT and you will enjoy retirement and be able to pass whatever is left of your pension to your children and children. Get it WRONG and retirement could become very miserable indeed.

So, what DO YOU REALLY NEED TO KNOW to avoid the risk of financial ruination?

Take an all-round view of retirement

Drawing down your pension money should never be viewed in isolation. You should view your pension in the context of all your finances. Consider what your state pension will be, what other savings you have, whether you will downsize your home or maybe you will receive an inheritance in the future. Just making pension decision in isolation is a risk to avoid.

Project how much income you will have in retirement

Retiring without a plan of what you think your income is going to be could lead to you not having enough to live on each month or worse still, running out of money altogether. Understanding what your income will be and where it is going to come from could make the difference of still having money at the end of your life, instead of running out too soon.

Don’t ignore inflation

Just because inflation has been low in recent years, it does not mean you should ignore it. You could be in drawing from your pension for over 30 years and inflation will affect the purchasing power of your money.

Don’t assume how much you withdraw will always be ‘safe’

It’s easy to think that if you withdraw income at the same rate at which you expect your investments to grow, you’ll never run out of money. Not so. Investment returns vary all the time and the ups and downs can have a savage affect on the value o9f your investments, if you are drawing income at the wrong time. Always keep how much you withdraw and the performance or your investments under review to avoid having to make some harsh decisions in the future.

Have an emergency back-up plan

It is always a good idea to have a ‘what if…’ plan. What will you do if the world changes and you must make some substantial changes. For example, the plan would look at potential one-off capital expenditures (such as changing your car or fitting a new kitchen) Where the money will come from to pay for this? What will you do if there a major stock market crash and the value of your investments reduces significantly.  Have a back-up or contingency plan, just in case.

Get a Lasting Power of Attorney (LPA) in place

There are two types of LPA: one that deals with health and welfare, and: one that deals with property and financial affairs. If you do not have an LPA is not in place and the unfortunate happens and you lose mental capacity, it will take a long time and be very expensive for a relative to legally be able to start looking after your finances. In this interim period, things could become extremely difficult financially. This is becoming more important as more and more people are suffering from dementia and related illnesses in old age.

Regularly review what is happening

This might seem an obvious point, but it is worth remembering that all investments need monitoring. Reviewing the performance of your investments, reviewing the income you are taking should not be overlooked. Early detection of a problem will help avoid pain later.

Don’t forget annuities

Just because you are taking an income from your pension at the start of retirement, does not mean that you cannot buy and annuity in the future. Whilst an annuity might not be right for you now, it may be in the future. An annuity will give you certainty of income and is not affected by the stock market. As you get older this may become more attractive to you.

Action Call

Are you concerned about your future financial plans? Not sure how best to take income from your pension and manage your investments?

Contact us to today. We can review your current situation and let you know what options are available to you.

If you would like to talk to about financial planning, please get in touch for a no-obligation meeting. Go to our website www.miadvice.co.uk and contact us via our “Get in touch” form on our home page or Contact Martin Dodd on 01902 742221.

Email us at financialplanning@miadvice.co.uk

It is advisable to take advice from a professional financial adviser when making major financial planning decisions.

Check out our other recent articles here

This article has been prepared in good faith and based on Midlands Investment Agency’s understanding of the law and interpretation thereof at the time of creation. The contents should not be regarded as specific advice and we always recommend that specific advice is sort from a qualified professional. No responsibility can be accepted by Martin Dodd or Midlands Investment Agency Ltd., for any loss that may occur by a person acting or refraining from acting on the basis of this article.

 

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