Do you know how much you need to live comfortably when you retire? Do you have a plan in place? Find out everything you need to know about planning for a comfortable retirement by reading our latest blog.
What do I need to know?
The best strategy for your retirement is to have a plan set out so that you know that you are going to be comfortable.
How much money do I need before I can retire?
There is no set amount that is outlined for you to be able to retire, as this just depends upon yourself and your lifestyle choices.
Most people aim to retire once they have paid off their mortgage and their children have flown the nest.
Experts suggest that £23,000 a year is the basic funds needed for a comfortable retirement based on 2019 living costs.
How do I save for retirement?
Most people have a pension pot, which is made up from the workplace pension, the state pension and personal pensions.
Employers are legally required to put in 3% for their employee’s workplace pension if they are aged 22 or over and earn more than £10,000.
Employees must also contribute a minimum of 5% of their own earnings into their workplace pension.
If you are self-employed then you should consider a personal pension as you will not be paying into a workplace pension.
How long will my money last?
There is no definite answer to how long your pension will last as it depends upon how long you live, your outgoings and the lifestyle you choose to have when you have retired.
People are living longer, so more people are delaying their retirement and working longer than what their parents would have.
It is worth taking into consideration the following:
- Due to the increase in life expectancy, the traditional pension pot may run out.
- The increase in living costs, the money that you have saved will buy you less in the future.
So, it is worth making sure that you take your pension into your own hands, in case the government’s pension pot does run out.
What are the tax implications?
You should be aware that if you decide to cash in your pension at the age of 55, you could be faced with a large tax bill.
If you take your pension above the age of 55, then you will be able to take your whole retirement savings as a lump sum payment, and the first 25% will be tax free.
You should be aware that if you withdraw all your lump sum at once, you may be put into the higher income tax bracket.
If your salary is £41,000 a year, you will pay tax at 20%.
If you take £10,000 out of your pension, your income liability would be 40% on a proportion of your income. Which will start at £50,000.
So, £1,000 of the income will be taxed at 40%.
You will also have to pay tax on your pension income, which exceeds the personal allowance, which is £12,500.
Make sure that you plan for your retirement in advance so that you can live comfortably when you retire. It is also worth being aware of how your pension will be taxed, so that you can use it as tax-efficiently as possible.
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