Retiring in 2024? Congratulations on reaching this milestone! As you embark on this new chapter, it’s crucial to explore your retirement income options to make the most of your golden years. Let’s break down five sources of income that between them could form the bulk of your finances in the years ahead, with some tips and sources of further information.
1. State Pension
Your primary income source could be the UK State Pension. If you are entitled to the full amount, it will be £203.85 per week, increasing to £221.20 a week in April 2024. Whether you qualify for the maximum amount will depend on how many full years of National Insurance contributions you have made, or how many are credited to you. You use this super-simple State Pension Forecast Tool on the gov.uk website. The same page also has information on how you can apply for your State Pension.
2. Savings and investments
If you reach retirement with money in bank or building society savings accounts, ISAs, stocks and shares or other savings/investments, these can form an important part of your retirement income plan. Just remember that if you spend too much of this money too soon, you could be left with a shortfall later in retirement.
Also, think about the how comfortable you are with investment risk. You may want to consider moving money from medium- or high-risk investment vehicles to low-risk or risk-free alternatives if this is a concern to you.
3. Personal and workplace pensions
If you are in one or more defined benefit (final salary) or defined contribution (money purchase) pension schemes, these can deliver an important addition to your State Pension and savings/investment income.
Defined contribution schemes are where you build up a fund known as a pension pot. You do this yourself if it’s a personal pension scheme, or with help from your employer if it’s a workplace scheme. You can turn the money in your pension pot into an income from age 55, or leave it invested where it is if, like most people, you want to start your retirement income later on.
Among your options, one is to put your money into what’s known as flexi-access drawdown. Your money stays invested and you have the flexibility to take money out as and when you wish – until you have taken it all.
If you want guaranteed regular income instead of keeping your money invested, you may prefer an annuity. This converts your savings into a stable, guaranteed income for life or a fixed term. (You can calculate your annuity income as a first step in deciding if this is the right choice for you.)
The government-backed Pension Wise service provides information and guidance to anyone aged 50 or over with funds in a defined contribution pension scheme. You get a free 60-minute consultation with a pension expert to help you better understand your options.
Less common nowadays are defined benefit schemes. In these workplace schemes, you don’t build up your own individual pension pot. Instead, the scheme will pay you a guaranteed income for life based on your final salary when you left the employer, or on the average salary you were paid during your employment.
4. Income from property
Many people are able to generate income from property in retirement, for example if they have one or more rental properties. But even if your only investment in property has been your own home, you may still be able to generate some extra cash from it.
Downsizing is one option, where you sell up and move to a cheaper home. This could enable you to clear any existing mortgage and generate a healthy profit on the sale. However, make sure you factor in the costs, such as stamp duty, to ensure the financial feasibility of this option.
If you don’t want to move from your ‘forever home’ there are other ways to access some of your property wealth. For example, a lifetime mortgage lets you borrow money without selling your home. You have no mandatory repayments to make, as the plan is typically repaid through the sale of your home when you pass away or move into long-term care. Be sure to weigh the overall cost as it can be an expensive way to borrow. Start by calculating how much equity you can release and seek professional advice before making a decision.
About 20% of UK pensioners have their State Pension topped up with income-related benefits, according to government data. With Pension Credit increasing by 8.5% in April 2024, benefiting around 1.5 million pensioners, cash from this and other benefits can make a real difference to people on a low income.
Seeking further information, guidance or advice
Please remember, this article serves for informational purposes only. Make sure you understand your options and risks before making any decision about your retirement income. Consider consulting with a financial adviser for personal advice based on your unique circumstances.
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