If you are asking yourself the question when to cash in a pension, here are some options that can help you find the best solution suited to your specific needs. In short, you can opt for a portion of your pension, take 25% cash, which is tax free,or take a portion and some extra cash from your pension.
Normally the age at which you can opt for cashing in your pension is 55, both for defined contribution and defined benefit pension schemes. There are also options to take out the entire money from your pension fund or take in smaller amounts, leaving the balance accrue interest over a long period of time. Opting for these, one thing you should take into consideration is that, if you are entirely dependent on the cash taken from your pension fund, you may be able to meet both ends meet for yourself and your spouse, but you will be left with nothing to pass on to those whom you love, after your death.
Now the question arises as to when you can take out cash from your pension. Usually the age is 55, but if you in such profession where your retirement age is lower than 55, or you can prove that you are in poor health, you can take cash out of your pension before 55. In these cases, you will be required to seek the approval of the present or previous employer. What about tax? One thing for sure is that 25% of the pension amount taken is tax free and you have to pay tax on the rest amount, if you happen to take a lump sum. The chances are that you may land into a higher tax slab if you are opting for the entire amount, or a major portion of the amount lying in your pension fund. On the other hand, if you draw smaller amounts, you can save tax and also let the balance amount accrue interest in the due course.
There are even other options, where you can opt for buying flexi-access drawdown or annuity in case you are drawing 25%, which is tax free. After studying the options for when to cash in a pension, you should take into consideration the following:
- You may lose with the guarantee that your pension may have if you withdraw money from your pension.
- You can plan your budget accordingly when you take out some or the entire amount of money so that you find no financial problem during the rest of your life after retirement.
- Think how to safeguard the value of the money you are taking out during periods of inflation.
- One important consideration that you should think of is that how best you can pull on after your retirement and at the same time pass on to your near and dear ones after your death.
Taking a prudent decision could be the need of the hour, because you are the best judge of your financial status.
You will find many options in when to cash in a pension so that you can take a prudent decision in planning your retirement benefits.