Many people are interested in withdrawing their pension as a lump sum when they hit 55. However, there are some essential elements that you need to consider beforehand.
How much tax will you have to pay?
25% of your pension can be taken out of your scheme tax-free, as long as this does not exceed your annual income. The rest of your pension pot is subject to tax depending on how much you take out at once, meaning that you could be left a large tax bill if you choose to take out all of your pension immediately.
When should you get financial advice?
You should get financial advice if your pension plan is complex or if there are still some aspects which you are unsure about. If you need expert financial advice, www.portafinadiscovery.co.uk can provide you with reliable information and guidance related to your individual situation whenever you need it.
What pensions permit taking out your retirement pot at once?
The majority of pensions are with private or workplace schemes, which allow you to take your pension as a lump sum when you hit 55. However, other schemes such as unfunded and final salary schemes are more complicated.
If you have a final salary pension, you need to close this and transfer the funds to another pension type in order to access them as a lump sum. Similar to this, if you have an unfunded pension such as those run by the NHS, you will not be able to receive your pension as a lump sum and must instead gain this as an allowance throughout retirement.
How old do you have to be?
Most pension schemes will allow you to take out your pension at the age of 55 or later. However, there are some exceptional circumstances where you may be able to get your pension earlier, such as if you have a serious medical condition at a younger age.
What if you have already taken the tax-free sum?
If you have already taken the 25% tax-free, the rest of your pension will have been invested. This makes no difference to your access to the rest of your retirement pot, and you will then be able to get the rest of this in small or large sums whenever you want or need it.
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Will this impact your future financial situation?
Before you take out the whole of your pension at a young age, you need to consider how this may impact your finances during retirement seriously. Although this may not be a problem for those with a second form of income such as a business or investment, most people will have to rely on a State Pension which may not cover their costs if they choose to use their private or workplace pension now.
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