You're almost there. Retirement. Time to relax and look back on what you've achieved. So, are you ready for it?
You may feel ready to finish working but have you thought about whether you can afford it? What you have to do to prepare for it? Or even whether you will have enough to keep you occupied during retirement?
Where will your income come from?
You've thought ahead and made some savings for your retirement which you can now use in a couple of ways:
- Spend the whole lot on a pension. This will get you the highest monthly income in retirement.
- Take some of your savings (up to 25%) as a tax-free cash lump sum. You then use the rest of your savings to buy a lower pension.
From State Pension age, there is also the State Pension and, depending on your National Insurance contributions, the State Second Pension (also known as S2P). Remember, if you have saved for your future in other pension schemes you may also get an income from these.
Use the budget calculator to look at your finances in more detail.
What will you need to spend?
You may have been lucky enough to pay off your mortgage by the time you retire, or you may need to continue to pay rent. You will also have to think about what you spend from day to day and whether this might change in retirement.
Use the budget calculator to look at your finances in more detail.
How does your pot of savings become a monthly income?
You've been building up a pot of savings to use in retirement and at retirement you use those savings to buy a pension (also known as an annuity). An annuity is an agreement with an insurance company who will pay you an income each month until you die. This is called an Open Market Option and you can select the insurance company you use to provide your annuity. Alternatively, The Pensions Trust has engaged a firm of financial advisers who can assist you in the purchase of your pension, if required. There is a charge for this service currently £279.56 plus VAT which will be taken from your cash lump sum (or fund value if you do not choose to take a cash lump sum).
The amount of annuity you can buy will depend on a number of things, for example, the amount you have saved and by how much this has grown, the cost of buying the annuity and whether you want to provide an income for your dependants.
Your benefits can't be paid until the final value of your savings is available. If you and your employer are paying contributions up to the day you leave work, the final value of your savings won't be available until up to 6 weeks after your retirement date. Your fund will also need to be disinvested and processed. Therefore, in all it can take up to 8 weeks for you to receive any cash lump sum you have chosen and a little longer for your annuity payment to start. This will be backdated to your date of retirement. You should bear this delay in mind when making financial decisions around your retirement date and ensure that you reply quickly to any requests for information.