You pay into your pension all your working life and once you’re over 55 you’re allowed to take the money out.
However, the point of saving for your pension is usually so that you’ll have money to use when you’re finished your career. If you use the money before you stop working, or even before you stop working full-time, then you cwon’t have the funds to use later in life.
So one of the most important questions is how long will you live for?
A understanding of how long you’ve got left based on statistical averages can help you work out how much cash you’ll need in the future.
The answer depends on your gender, location, current age, fitness and whether you smoke.
The typical life span for a man is 83, a woman 86. So it is best to assume you have a good chance of exceeding that age, unless you have health issues, you probably want to spend around 4-5% of what you’ve got a year.
Around 1 in 10 men and 1 in 5 women will live to 100.
Obviously, any illness and lifestyle factors could affect this, but the reality is that your money may need to last a lot longer than you anticipated, especially with health care improving continuously.
So remember not to underestimate your own life expectancy. If you do, you could be looking at having not much to live off in your later years.
What other income will you have?
The money you have in your private pension may not be your only source of income.
The state pension – This is a retirement income you’ll get from the Government. The basic state pension is currently £175.20 a week (April 2020).
Work – you could decide to carry on working when you retire
Benefits – eg, Pension Credit, housing benefit, council tax benefit
Rental income – if you have any buy-to-let properties
Interest from savings or pensioner bonds
Dividends – from investments
Property – eg, if you decide to downsize
Inheritance money – with people living longer, many will receive inheritance when retired
Spending your capital – taking money from your pension
What will your spending be?
You will need to work out what your likely outgoings will be in the future such as any mortgage repayments or rent, food, gas and electricity, travel costs, insurance policies etc.
Your outgoings in your 60s, will be different than in your 80s – for example, your mortgage will be paid, but you may need to pay more in care costs.
How much money is in my pension?
Unless you analyse your pension statements, it can be difficult to know how much money you have in your pension. The pack you receive from your pension provider about 6 months before your selected retirement age should advise you.
You should receive an annual pension statement from your provider. If you can’t find that you can contact your pension provider or if it was an employer pension you could try contacting your old employer.
If you paid into more than one pension pot, then you’ll need to contact each pension provider to find out the value of each pension.
Other benefits you can take
There are some benefits that you might be entitled to. Including:
Pension credit: Nearly half of all pensioners are entitled to this. It tops up income to a minimum level if you’re over 60. You could get extra credit if you have modest savings and are over 65.
Claim benefits: As your income will usually be less than when you’re working, you may be entitled to certain benefits. Some benefits you may be entitled to are income tested, which means you’ll have your income assessed.
Heating grants: There are some heating grants available for householders who are 60 or over who get means-tested and/or disability benefits.
Winter fuel payments: Winter fuel payments are paid to most people 60 or over and can be worth £100s.
Help with council tax: You can claim this rebate whether you own your own home or rent
it. There are also council tax discounts, for example 25% off if you live alone. If you have a disabled person living in your home you may also be able to claim a disability reduction. This would lower your council tax band so that you would pay less.
Help with your rent: If you pay rent you may be able to get some help from housing benefit, which is paid by the local authority. Housing benefit can also help towards some service charges.
Help with health costs: Everyone 60 or over gets free prescriptions and eye tests. If you have less than £16,000 in savings you may be able to get some help towards dental treatment, glasses and travel costs to hospital if you fill in an HC1 form.
Other benefits to take advantage of:
• Travel concessions if 60 or over
• Free TV licence if 75 or over
• Free passport if 80 or over
In our next article we will discuss Receiving your pension