Retirement income options for 2024
If you are retiring in 2024, you may be looking forward to receiving some or all of the maximum State Pension of £203.85 per week. But of course, most people will have access to other sources of retirement income.
If you are a member of a pension scheme, this could generate the biggest addition to your State Pension income.
For members of a defined contribution (final salary) pension scheme, the level of income they receive from it will be set in stone and linked to their final or average salary. That keeps things fairly simple – but things get a little more complicated for the other main type of pension scheme.
More common nowadays are ‘defined contribution’ (money purchase) schemes. When you are in these schemes you build up a pension fund and have options when it comes to turning this fun into income:
Buy an annuity. This is an income product that converts your pension savings into regular income for life or a fixed term. The income is guaranteed and won’t be affected by ups and downs of investments. An annuity calculator will let you see how much annuity income you could get from your pension savings.
Put your money into drawdown. This is where you move your pension fund to a drawdown provider and take money from it as and when you wish. Your fund will be invested, so you could benefit from investment growth – or lose out if the markets perform badly.
Take lump sums. You can choose to keep your pension invested in your existing scheme and take lump sums from it whenever you want. This may be a suitable option if you want to keep your options open, and maybe choose an annuity or drawdown at a later date.
With an annuity or drawdown, you can take up to 25% of your pension fund as a tax-free lump sum from the age of 55. That isn’t the case when you leave your money with your current pension scheme.
Choosing between an annuity, drawdown or lump sums can be daunting. Thankfully, if you are aged 50+ and have one or more defined contribution pensions, you can arrange a free 60-minute appointment with Pension Wise - the government backed service - to discuss your options.
Don’t forget also that you may have access to other sources of retirement income. Here are some examples:
Savings and investments. Bank or building society savings accounts, ISAs, stocks, shares and other savings or investments can all supplement your pension income. This source of income can be very flexible, but there is of course the risk that that you run out of money if you don’t keep a close eye on your spending.
Downsizing. You may decide to sell your home and move to somewhere smaller or in a less expensive area. That could generate a sizeable chunk of money to add to your retirement fund. Just watch out for hidden costs such as stamp duty.
Equity release. This is an expensive form of lending, but has the big advantage that you don’t have to make regular repayments. Instead, the money you borrow and the interest that accrues are typically repaid through the sale of your home when you pass away or move into long-term care. Be sure to take specialist advice before deciding if it’s right for you. You can start looking into it by seeing how much equity you could release.
Government support. Millions of pensioners receive national or local government help to supplement their State Pension. For example, Pension Credit is there for people over State Pension age on an income below £201.05 for single people, and a joint weekly income below £306.85 for couples.
Please note: This article is for information purposes only and does not constitute financial advice. Please seek professional guidance or advice before making important decisions about your retirement income.
