The do's and dont's of retirement

US-PDGov

By Phillip Bray

You will probably only ever retire once, it therefore makes sense to try and get as many of the financial decisions right as possible.

We help people make great financial decisions about their retirement every day of the week, helping our clients to secure their financial future and allowing them to enjoy everything that retirement holds. We’ve put this experience to good use and come up with some quick do’s and don’ts to help you have a financially successful retirement.

Do

Shop around for the best annuity rate. An FSA survey in 2010 found that only 40 percent of people shopped around for the best annuity rate, that means 60 percent of people probably could have got more income if they had made the effort to look.

Try and get an enhanced annuity. An enhanced annuity will give you a higher income if you have medical problems or lifestyle issues such as smoking. Even relatively minor issues might count.

Think about other options. An annuity is only one option available to turn your pension fund into an income. Think about other options such as income drawdown, a fixed term annuity, an investment linked annuity or even flexible drawdown; an annuity isn’t right for everyone.

Spend your tax free cash wisely. You only get it once, enjoy it, be sensible with it, do whatever you choose, but remember once it’s gone you are no longer working so it will be hard to replace.

Take independent advice. You’ve probably never retired before, whereas most financial advisers have helped hundreds of people retire, take their advice and learn from their experiences.

Work your savings hard. If you have savings then shop around for the best possible interest rate, if you need to start to take an income consider moving to alternative accounts which pay interest out each month, and if you are a non-taxpayer in retirement tell your bank or building society to stop taxing the interest you receive.

Budget carefully. Your income is likely to drop substantially when you retire, make sure that your income will cover your outgoings, if it doesn’t, you will need to change something; spend less, work longer or take more risks with your pension to get a higher income.

Don’t

Buy the first annuity you are offered. Too many people buy the first annuity they see and don’t shop around. This is a massive mistake, probably the biggest you will ever make, always shop around to try and get a better rate, once you have bought an Annuity is can’t be changed, if you make a mistake it can’t be undone.

Take more risk than you need to. If you want a risk free simple solution, that will give you a guaranteed annuity for the rest of your life then an Annuity is probably right for you. Don’t get talked into considering other more risky options which you might regret at a later date.

Don’t use all of your pension fund to buy an annuity. Even if you don’t want, or need the 25 percent tax free lump sum, take it and buy a purchase life annuity (PLA). This type of Annuity is taxed less than a normal Annuity, which will mean you have a higher net income.

Don’t take biased advice. Always see an independent adviser; it’s the only way of knowing they are working on your behalf and able to look at every option.

Confusing time

Retirement can be a confusing time, there are big changes ahead, following our do’s and don’ts should help you avoid some of the biggest pitfalls out there, but beware of others, they are lurking for you around every corner!

About the author: Phillip Bray is a retirement expert and writes for Investment Sense helping people plan their retirement. From the first time they use a pension Annuity calculator to the first payment of their annuity, Phillip's articles will help you make the right decisions.