Don’t Let Rash Decisions Cost You Tens of Thousands in Retirement
When it comes to retirement planning, making the right decisions is crucial. With the wrong moves, you could end up losing tens of thousands of pounds. That’s why financial expert Martin Lewis is warning people born in the late 1960s and early 1970s to be cautious when approaching their workplace pensions.
Making the right decisions in retirement planning is crucial
According to Martin Lewis, those nearing the age of 55 should carefully consider their options before withdrawing money from their pension pot. This is due to the significant tax implications and the potential underestimation of how long the funds in your workplace pension need to last.
“Don’t underestimate your longevity. Someone aged 65, on average a man will live another 20 years, a woman another 22 years.” - Martin Lewis
He further emphasized that factors such as health, smoking, and current age all play a role in determining one’s life expectancy. For instance, a man has a 10% chance of living to 96, and a woman has a 10% chance of living to 98.
Martin Lewis also cautioned against wastefully taking out pension funds, which could result in losing tens of thousands of pounds. He explained that tax implications can be complicated, and misunderstanding them could lead to hefty losses.
Tax implications can be complicated when withdrawing pension funds
To illustrate this point, Martin Lewis used the analogy of a giant Swiss roll. The taxable part of the pension is like the sponge, while the tax-free amount is like the jam in the middle. When you take your money out, you get a slice of the Swiss roll, which includes both the taxable and tax-free parts.
However, if you opt for a drawdown or annuity, you can take the jam (the tax-free amount) first, and then receive the rest of your pension later on. This strategy could result in paying less tax, especially if you’re no longer working or earning a high income.
A strategic approach to pension withdrawal can save you thousands