Retirement is a wonderful time to enjoy the fruits of your labour, but we all know that making your savings last is crucial. Did you know that by being smart about how you withdraw your money, you can reduce the tax you pay and make your pension stretch even further? This means more money in your pocket and a more comfortable retirement for you! Lovemoney recently shared some tips:
Smart Ways to Tap into Your Savings
1. Don’t Keep Too Much Cash in the Bank: It might be tempting to keep lots of cash readily available, but did you know you could be missing out? By keeping large sums in a bank account, you’ll pay Income Tax on any interest you earn above your Personal Savings Allowance.
2. Let Your Savings Grow Tax-Free: Your pension, Lifetime ISA (LISA), and ISA are like magic money pots – they keep growing tax-free while you leave them be! Resist the urge to withdraw money from them unless you absolutely need it.
3. Your ISA is Your Friend: Think of your ISA as your go-to for extra income. You can withdraw from it at any time without paying any tax. This is particularly useful when you’re transitioning from full-time work to retirement.
4. Unlock a Tax-Free Pension Bonus: Here’s a secret: you can take out 25% of your pension pot completely tax-free from age 55! This won’t affect your tax rate or limit how much you can save in your pension each year.
5. Make the Most of Your Tax Allowance: Everyone has a Personal Tax Allowance – an amount of income you can earn each year without paying any tax. If you’re receiving less than this, consider topping up your income with some pension withdrawals – you’ll thank yourself later!
6. Small Pots, Big Impact: If you have small pension pots worth less than £10,000, cashing them in can be a savvy move. This won’t affect how much you can save in other pensions each year.
Time Your Pension Wisely
7. Access Your Pension Last: Think of your pension as the grand finale of your retirement savings. Accessing it after your ISA and tax-free pension cash ensures you minimise your tax burden and make your pension last longer.
8. Don’t Fall into a Higher Tax Bracket: It’s tempting to withdraw large sums from your pension, but be careful not to push yourself into a higher tax bracket. Taking out smaller amounts as needed can save you a significant amount in taxes.
9. Leave a Legacy for Your Loved Ones: Your pension can become a gift that keeps on giving. Unlike ISAs, pensions aren’t subject to Inheritance Tax, meaning your loved ones can inherit them tax-free if you pass away before 75. Even after 75, they benefit from inheriting your pension savings.
Remember, these are just a few tips – everyone’s situation is different. Seeking advice from a qualified financial advisor can help you create a tailored plan that helps you make the most of your retirement savings.