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17th July 2019
Working hard so that you can retire early is an aspiring goal for many, but there are some things you should consider first before deciding. Yes, working until your late-60s or early-70s is not always appealing, but it can have some benefits. Surprising, but it’s true. Working for a few more years can be very beneficial to your mental and physical wellbeing. Not only that, there’s also the extra finances you’ll be banking while you’re at it, which will make your retirement all the more comfortable!
The retirement ages are already increasing, simply because we’re healthier and living longer. You can currently access your workplace or personal pension around a decade earlier at 55, but this could potentially change in the future. This may sound like a bad thing but think about it for a second! We’re living longer, so if you grab that pension too early and live longer than you expected, you may find yourself in some financial trouble when you need it most.
The world is changing around us, and while it’s for the better it can be a little daunting. But it’ll be alright, just so long as you plan for it in advance. Whatever your previous plans, here are six reasons why you should consider delaying taking your pension:
1. Your life expectancy is increasing
To expand on what was previously mentioned, today’s 65-year-olds could expect to live for a further 21 years. This means that pension savings will need to last over two decades from the age the State Pension kicks in. This is providing you don’t access your pension earlier than this.
20-30 years is a long time to depend on your retirement income, and can be a hard pill to swallow, especially if you haven’t been able to save enough during your working life. To put it simply, depending on your situation, the longer you work, the longer you can expect your money to last.
If you’re curious about your pension earnings, you can check what your retirement income will be by using an online pension calculator.
2. Your pension has longer to grow
Whether you decide to keep working and paying into your pension, or just leave your funds untouched for a few years after retirement, keeping your pension invested for as long as possible can really settle your stress. Compound interest, for example, accumulates over time and can turn a small savings pot into a significant amount when left untouched.
If you want to give your savings even more time to increase in value, flexi-access drawdown could be a good option as you’ll be able to withdraw lump sums whenever you need them.
3. You can maximise your investment potential before moving to safer assets
As you approach retirement some pension plans will automatically lower the risk of your investments by switching the assets you invest in. This is simply to protect your investment from risk as you get closer to needing the pension. Basically, if the markets were to take a sudden turn for the worse, your pension balance could be affected and there might not be enough time for it to recover before you retire.
But, if you plan to retire later, you may be able to maximise your investments for a few extra years. The switch to cash or fixed interest assets usually happens 5-10 years before retirement. So, if you don’t like the sound of the risk factor being switched automatically, you can contact your pension provider to adjust your retirement age.
4. Your employer will keep topping up your pension
If you continue working, your employer will usually be required by law to keep topping up your pension through Auto Enrolment. As things stand right now this means that for every extra year you continue working from 2019 you can gain an extra 3% of your salary added to your workplace pension by your employer.
5. You’ll continue to receive tax relief on pension contributions until age 75
When you add the minimum amount that you place into your pension, plus your employer contributions, you’ll also continue to receive tax relief. For the last few tax years, workers have been entitled to claim tax relief on pension contributions up to £40,000 or 100% of their annual earnings.
6. Delaying your state pension can boost your payments
There’s a chance that you might not even need your state pension when the time comes. If you have retirement income coming from other sources or are still working, it could be a good idea to defer your State Pension for some time.
Delaying your State Pension by just a few weeks could result in you receiving a higher weekly State Pension amount, or even a lump sum payment. The amount you’ll qualify for depends on when you reach State Pension age. What’s really great news is that you can start deferring your pension even if you’ve already started drawing it. You can also choose to defer it for as long as you want!
The content of this article is for general information only and should not be considered advice. Pensions are not normally accessible until age 55. The value of investments can go down as well as up in value and you may get back less than you invested. Your pension income could also be affected by interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. Accessing pension benefits early may impact on levels of retirement income and is not suitable for everyone.
Reference – BL072 – Jul – 2019
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