Issue 131

PENSIONS

Retiring before State Pension age – what you need to know

The thought of retiring before the State Pension age can seem appealing but there are issues that need to be considered to ensure financial stability and wellbeing over the retirement years, as Lowes Financial Planner Barry O’Sullivan explains.

aggressive investment strategy, which also comes with higher risks. Early retirees also can face a greater risk of outliving their retirement savings. With potentially more years in retirement, careful financial planning is essential to ensure that your income will last your lifetime. Lowes advisers can use our retirement planning tool to map out income against expenses to project income over the years, to help ensure this does not happen. In addition, accessing pensions and other savings before the State Pension age can have various tax implications. For instance, withdrawing from a personal pension before the age of 55 (rising to 57 in 2028) can incur tax penalties. The tax treatment of pension withdrawals can affect overall tax liabilities, which also requires careful planning to minimise potential tax burdens. And the order in which money is withdrawn from pensions, savings and investments matters for issues such as Inheritance Tax. And of course, with changes in government pension and retirement policies impacting the benefits and rules for retirees. Staying informed about potential changes in pension legislation, tax policies, and state benefits is crucial to adapt plans accordingly and ensure continued financial stability. This is where Lowes’ constant monitoring of legislation and regulation can be invaluable. If you are considering early retirement, talk to your Lowes adviser who can review your retirement plans accordingly, to help you navigate any unforeseen challenges and penalties.

For anyone thinking of retiring early, there are a number of key issues to be considered. First is ensuring you will have enough income in the early years, ahead of receiving the state pension, particularly if the state pension will form an important component of your retirement income. In the short term, this will likely mean drawing down on workplace and private pensions, as well as personal savings and investments, to cover living expenses. You will need sound financial planning to ensure that taking money out at the front end will not see you have insufficient funds or worse, run out of money, later down the line. Often people want to travel and undertake other exciting ventures early in retirement. It is important that the costs of doing so are properly balanced against ensuring retirement income resources are sufficient to maintain a desired lifestyle in the years ahead. Early retirement invariably means drawing from pension funds earlier and potentially for a longer period. This usually means settling for a lower annual income and depending on the income source, can increase the risk of depleting these funds over time. It is important to plan withdrawals and consider the impact of early access on the overall pension income. Over a longer retirement period, the risk of inflation eroding the purchasing power of savings and pensions becomes more significant. Another key issue, therefore, is ensuring your retirement savings are invested in a way that can at least keep pace with inflation. This might involve a more

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