How to turn your pension savings into an income for life

How To Turn Your Pension Savings Into An Income For Life

Turning your pension into an income for life has never been trickier. The global pandemic pushed pension fund growth significantly down in 2020, and some savers have been forced to dip more heavily into their nest eggs. Both factors will increase the risk you’ll run out of money in retirement.

Thankfully pension fund growth has been creeping back up, and as the worst effects of the Covid pandemic are combated with the vaccines, derailed retirement spending plans can get back on track.

But the disruption has confirmed some important lessons about future-proofing your pension pot to give it the best chance of providing you an income for life

1.Consider the Safe Withdrawal Rate

Keeping tight reins on how much you take from an invested pension pot once you hit retirement is one of the best ways to ensure it lasts as long as you do.

You could consider using the Safe Withdrawal Rate; taking no more than 4% of your starting balance each year in retirement. This method offers some protection against market downturns to stretch your money further.

2. Boost and defer your defined benefit pension

If you have a defined benefit (DB) pension it will usually already provide a guaranteed income for life. There are two ways to make even better use of this valuable asset.

  • Deferring (taking it later) will typically get you a guaranteed uplift, increasing your annual income and any entitlement to tax-free cash.
  • If you’re still an active member you may be able to make additional voluntary contributions to your scheme or accelerate the build-up of the pension for a higher guaranteed income in retirement, but check the extra income is worth it.

3. Check your domestic pension entitlement

A state pension is often a very useful bedrock of guaranteed retirement income. Different regimes can offer ways to boost the income from it.

  • Consider deferring

For example, if you are entitled to a UK state pension, even if you are not retiring in the UK, the government will increase your pension by 1% for every nine weeks you defer (delay) taking it; roughly 5.8% for each year. If you are working past retirement age this can make sense, so you’ll have more guaranteed income when you need it later on.

  • Check ways to top up your state pension

For example, you need 35 years of National Insurance contributions for a full UK state pension. Those working abroad often have gaps. Voluntary contributions, for the past six years can boost this income.

4. Rethink an annuity

Even if you rule out an annuity as bad value in early retirement, revisit your decision as annuity rates are higher the older you are when you buy one. If you develop any conditions, such as high blood pressure, or become seriously ill, you’ll be able to buy an “enhanced annuity”, which is worth much more in annual income.

If you’re looking for solid and transparent advice about how to manage your pension savings, get in contact with one of our friendly advisors today.

Are you a resident of the USA?