4 Ideas To Supplement A Pension Income
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
When it comes to planning a retirement income discussion often focuses on the ways to build up a pension income. This is understandable given the many advantages offered by pensions under UK tax rules in 2020-21, such as the tax relief offered on workplace pension contributions and the triple-lock offered by the state pension (ensuring income rises with the cost of living). Yet are pensions the only prudent way to generate an income in retirement?
In this article, our Lincolnshire financial advisers offer four possible ways to explore generating a retirement income outside of pensions. We hope you find this content useful and informative. If you would like to discuss your own financial plan a financial adviser in Lincoln, please get in touch to arrange a no-obligation consultation, at our expense:
An individual savings account (ISA) is often seen as a good way to store emergency cash or to invest for a short/medium-term goal, such as saving up for a house deposit within the next ten years. It isn’t always seen as an option to help build up a retirement income, yet ISAs can be a very powerful financial planning tool for these purposes within the right circumstances.
In 2020-21, you are allowed to commit £20,000 per annum into your ISAs and any interest, dividends or capital gains generated within the account will be tax-free. This opens up some interesting possibilities for retirement planning purposes. Suppose you maxed out your ISAs every year for ten years. Under current rules, this could allow you to build a £200,000 portfolio of ISA savings – largely free from tax. For those looking to retire early, this could offer a way to generate some retirement income since you are not prohibited from accessing the funds until you are aged 55 (as you are with pension savings).
#2 Property investments
Another option which is attractive to many people is the idea of owning one or more properties in addition to your home, and letting them out to tenants in retirement to help provide an income. Indeed, about 33% of people approaching retirement are considering purchasing at least one Buy To Let property to help fund their lifestyle. This can be a good option for some people, but it’s important to seek financial advice first. Taxes are higher for second properties and these (along with other costs like maintenance) can eat into your returns. There is also the danger that one or more of your properties might not find tenants in the future, which could jeapordise your retirement income.
#3 Pick up some work
Contrary to what many people think, you are not necessarily prohibited from picking up any paid work again after you retire. In fact, about 1.5m people in the UK continue working in some capacity once they pass their state pension age. The good news is that, once you reach this age, you no longer have to pay national insurance contributions (NICs) – putting more money in your pocket. Many people also start up their first business after they retire, perhaps as a sole trader. This can help bring an income in during your 60s and beyond, but it requires careful planning. Starting a business can be immensely rewarding but comes with risks that need managing, and taxes which need dealing with!
#4 Your property
Many people in the UK are “asset rich” but “cash poor”, and the common example is of a person in their 50s or 60s with a valuable house but relatively low cash reserves or pension savings. In such instances, it might be appropriate to explore options regarding how to access some of the equity in the property to open up additional income streams in retirement. The most dramatic of these options, of course, is selling your house and downsizing – using the remaining cash from the sale to supplement a retirement income (e.g. by boosting your pension pot).
Another option is to consider equity release which allows you to “unlock” some of the value of your home as a lump sum, whilst continuing to live there. This route does come with its risks and costs, however. Generally speaking, financial advisers such as ours here in Grantham do not recommend relying on your home to fund future retirement. If the value of your home goes down at the time you look to retire, or you struggle to find a buyer, then you might find yourself in a difficult situation.
Here at Castlegate, we recognise that each person has a unique financial situation and set of goals which greatly influence the kind of retirement plan which is best for them. Our role is to help you attain the best deal at value for money, and to minimise any unnecessary risks which could veer your retirement plans off course.
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: