Retirement opens doors to exciting prospects like travel, hobbies and more quality time with loved ones, but thinking about all the financial decisions around it can feel overwhelming.<\/p>\n
In the lead-up to giving up work for good, questions around pension pots, annuities and tax become increasingly important and tackling these less-exciting details now will enable you to enjoy the fun stuff later without the added stress.<\/p>\n
To help make the transition smoother, we enlisted the help of Robert Cochran, retirement expert at UK pension and investment company Scottish Widows, who has outlined three essential financial questions to ask yourself before stepping into this next chapter of life\u2026<\/p>\n
1. What type of retirement lifestyle can I realistically expect?<\/p>\n
\u201cThe Pensions and Lifetime Savings Association (now called Pensions UK) created something called the three retirement living standards profiles \u2013 minimum, moderate and comfortable \u2013 and they\u2019re based on expenditure in retirement,\u201d explains Cochran. \u201cIt takes into account factors like how frequently you are going to replace your car, the type of holidays you want to go on, broadband costs and how much you spend on presents.<\/p>\n
\u201cThese standards have been set on an individual level and a couple level, and are much more achievable on a couple level.\u201d<\/p>\n
For an idea of the kinds of saving you’ll need for a basic or comfortable retirement fund, look for similar online guidelines based on living standards in the country where you plan to retire.<\/p>\n
According to guidelines for the UK, for example, the minimum living standard is set at \u00a313,400 (RM75,556.95)\u00a0per year for a single person and \u00a321,600 (RM121,793.28) for a couple. A moderate standard of living requires \u00a331,700 (RM178,742.92)\u00a0for one person and \u00a343,900 for two, while a comfortable lifestyle is defined as needing \u00a343,900 (RM247,533.57)\u00a0for an individual and \u00a360,600 (RM341,697.83)\u00a0for a couple.<\/p>\n
2. Do I know the tax implications of retiring?<\/p>\n
There are a number of different ways you can access your pension savings, and there are tax implications for each of these.<\/p>\n
\u201cOne of the most common mistakes people make is not thinking about tax enough,\u201d says Cochran. This will vary depending on where you are living and retiring.<\/p>\n
In the UK, for example: \u201cMost people accessing their pension at 55 years old will be able to take 25% of their pension tax-free, but if you take it out as income all in one go you maximise the tax you have to pay. So, I would strongly encourage people to know what the tax implications are before they start taking any money out.\u201d<\/p>\n
3. Do I want a pension annuity? If so, what type?<\/p>\n
\u201cAn annuity is a guaranteed income for life and it\u2019s an irreversible decision. So, once you make that decision, you\u2019ve got to stick by it,\u201d highlights Cochran. \u201cThere are a whole host of different types of annuity with all kind of guarantees but one of the most popular, which pays the highest levels of income, will be on a single life basis with no guarantees.\u201d<\/p>\n
Despite the popularity of this, Cochran stresses that it\u2019s not necessarily always the best type to get, particularly if you\u2019re in a couple.<\/p>\n
\u201cThis is because on average women live longer than men and men traditionally have bigger pension pots, so if a man goes and takes out a single basis annuity for the highest possible income he can get with no guarantees, when he dies his spouse will get nothing from that fund,\u201d says Cochran.<\/p>\n
\u201cSo it\u2019s particularly important for couples to talk to each other about this. Are you willing to forgo what is usually a really small amount of initial income to have a guarantee of an income for your loved one upon the death of the first spouse?\u201d \u2013 By Camilla Foster\/dpa<\/p>\n
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