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Considering A Pension Withdrawal? Bear These 4 Principles In Mind

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As an independent financial adviser in Stamford, we hear a range of ideas from clients about what they want to do with their pension withdrawals. Some popular examples include:

  • Investing the money to produce more income.
  • Travelling the world, going on holiday or going on a long cruise.
  • Putting money aside for emergency situations.
  • Extensions, upgrades and developments to property or homes.
  • Paying off debts.
  • Repaying the mortgage, possibly in order to live mortgage-free.
  • Giving financial assistance to children or other family members.

Regardless of your reasons, if you are considering a pension withdrawal it’s important to bear these 4 principles in mind:

1. Assume Emergencies Will Cost More Than You Think
You never know when you suddenly might find yourself needing to buy a new washing machine, replace a car, or fork out on a costly medical expense.

The clients we advise in Stamford come from a range of backgrounds and financial situations, so the advice we give varies regarding what percentage of their assets should be set aside for emergencies.

A good rule of thumb is 10-25%. However, you should speak to a qualified, experienced financial adviser in Stamford before making any firm decisions on how to deploy your assets.

2. Be Aware of the Tax Man
When you withdraw from a pension, you are usually able to take 25% of the amount tax-free. The remainder is taxed as income, and will be added to any other income you have that can be taxed.

This might put you in the 20% tax bracket, 40% or 45%. It varies according to your specific situation. It also matters when and how you choose to withdraw. For instance, it might be beneficial to spread your withdrawals over a number of tax years.

Again, speak to a local, reputable financial adviser in Stamford if you are unsure of the most beneficial route for you.

3. Address Debts

Nearly a third of mortgage-holders also have additional debts. If you are approaching retirement, it is usually sensible to try and pay off your debts so as to avoid additional interest charges. There can also be ways to do this in a tax-efficient manner.

4. Prioritise Needs Over Wants

Many people approaching retirement have noble ambitions to help others, particularly family members. They might want to pay off their children’s student debt, for instance, or give them money towards a deposit on a house.

These things are worthy, admirable ambitions. However, they should come secondary to your own needs. After all, you will not be helping your children at all if you pay off their student debt, only to impoverish yourself. You might then end up falling back on the people you helped in the first place! Look after yourself and your own financial plan first.

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