Pension warning – one SIMPLE mistake could wreck your retirement. ‘Lifelong regrets’ – Express

Pension: Expert gives advice on preparing for retirement

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Whether you are coming up to retirement or have already stopped working, you need to get every decision right or you could regret it for life, said Jonathan Watts-Lay, director at retirement advisers WEALTH at work. “It is heart-breaking when people make mistakes with their hard-earned savings which could have been so easily avoided.” The following tips will help.

Work out how much income you need. You will want money to meet your everyday living expenses and household bills, plus some left over for holidays and hobbies.

The cost of living crisis will make this harder, but retired people have several advantages, Watts-Lay said. “Typically, you will pay less income tax, no National Insurance and your mortgages and loans should be paid off. You will stop making pension contributions, and your children should be financially independent. You could get by on half your working salary.”

Check you can afford to retire. A single person needs retirement income of £10,900 to fund a basic standard of living, £20,800 for a moderate standard and £33,600 to be comfortable, according to The Pensions and Lifetime Savings Association.

Watts-Lay said: “Will your savings deliver that much income or do you need to work longer or part-time?” Remember, your pension needs to last at least 20 years.

Shock

Small errors could cost you dear over a 20-year retirement (Image: Getty)

Track down all your wealth. As well as pensions, you may have money in Isas or savings account. Add it up and track down any lost accounts, to make sure nothing has gone astray.

Manage your tax bills. Typically, you can take 25 percent of a defined contribution pension free of tax, but the remainder is added to your earnings for that year and may be subject to income tax. “If you take the money as a simple lump sum, you could get pushed from paying 20 percent tax to 40 percent tax,” Watts-Lay said.

It is often better small amount each year, to stay within a lower tax bracket. “Top it up with withdrawals from your Isa, as this is paid tax free.”

Decide when to access your pension. You can now access your pension from age 55 but don’t raid it too soon, as you may quickly deplete it. You also have to choose between income drawdown, an annuity or a single cash lump sum. Seek independent financial advice or get free Pension Wise guidance from government-funded MoneyHelper.org.uk.

READ MORE: Pension warning – mistake could cost 40% of your retirement savings

Beware pension transfer promises. Members of defined benefit final salary schemes can transfer out and get a chunk of cash in return, but it can be risky, Watts-Lay said. “Dangers include falling for a scam, buying inappropriate retirement products, paying too much tax and running out of money.”

Always shop around. Whether you are looking for income drawdown or annuity, shop around for the best deal. Buying an over-priced income drawdown plan with a £250,000 pension could cost you £12,300 in charges over a 20-year period, Which? found. Annuity rates also vary greatly so do not just buy from your current pension supplier, compare the market.

Don’t rule out annuities. The majority of new pensioners now opt for income drawdown instead of annuities, but annuities still have advantages. They give you a guaranteed income for life, whereas with income drawdown your money could run out, Watts-Lay adds: “Managing your money through drawdown becomes harder as you get older and your cognitive abilities decline.”

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Plan

Careful planning at retirement can make all the difference (Image: Getty)

Update pension beneficiary details. Pensions can be a tax-efficient way to pass on your wealth when you die as they are not usually subject to inheritance tax, but make sure the money goes to the right people. Inform pension providers of your wishes by nominating beneficiaries, and keep them up to date.

Consider regulated financial advice. More of us like to buy products such as annuities online but it can be just as affordable to buy them through an adviser as an online broker. “Plus you will get support throughout retirement, and redress if something goes wrong,” Watts-Lay said.

Protect yourself from scams. Scammers often use professional looking websites and marketing literature to lure you in, and tend to sound completely legitimate when they contact you. It’s easy to be fooled and losses can run into tens of thousands of pounds, ruining retirements.

Understand what you are doing. Pension freedoms give people a lot more choice over how and when to take their retirement income, but some will find the options overwhelming. “Make sure you understand the choices you are making, and seek advice if you don’t,” Watts-Lay said.