How to Maximise Your Pension Pots Before Retirement
No matter how far or close you may be from retiring, there’s no such thing as increasing your retirement income too early. A common misconception that employees tend to hold is that it’s best to enjoy their income until they turn 50, and only then should they start saving up for their pension after.
It is essential to realise that putting cash into your pension as early as possible is going to pay off in the long run. Increasing your retirement income can be done to both your State Pension entitlement and any other personal pension pots that you may have or are interested in applying for.
When it comes to boosting your pension as much as possible to live the retired lifestyle that you, there are two ways you can go about it:
- You can delay the date on which you’ll start taking your retirement income to draw down larger monthly chunks for the rest of your life, or;
- Add as much as you can on top of your existing pension plan or start another one long before you intend to retire
Here’s a quick guide to get started with the post-retirement lifestyle you’ve always dreamt of living:
On boosting or making the most out of your State Pension income
Once you meet the requirements for a state pension age, it is essential to accumulate 35 years of National Insurance contributions to get the maximum amount post-retirement. Conversely, if you haven’t met the standard of 35 qualifying years of contributions, then you only get a fraction of the full amount.
For example, if you managed to contribute for 28 years, then you’ll be getting four-fifths of the full pension per week, which limits how much you could possibly get from the maximum by £1,618.56 annually. Based on the technicalities of State Pension, it is assumed that the best way to maximise your monthly stipend is to pay 35 full years—which can be easy, considering the average working life of 40 years.
On increasing your workplace or personal pension pots
Every workplace or personal pension pot comes with the option to increase your monthly contributions before retirement at the expense of your monthly salary. Although it may seem like an impediment at first to add a bit more to your pension contributions, the long-term benefits of having a bigger monthly allowance outweigh that of a few extra drinks at the pub.
Aside from beefing up the amount that you get every month after retirement, increasing your workplace or personal pension pots can go a long way in regards to acquiring tax relief.
For example, if a higher-rate taxpayer increases their contribution from £80 to £100 every month, the government supplements it with tax relief at the basic rate of 20 per cent. This basic tax relief rate bumps up the current monthly contribution of £100 to £120, which leads to an extra £7,200 at the start of your retirement.
Maximising your pension pots before retirement is one of the most effective ways to ensure that you live the life that you want after leaving the workforce. By taking this short but effective guide into mind, you can get your pension goals on the right track no matter how far away from retirement you may be.
If you’re looking for a financial planning business to help you learn more about investing in a pension pot, get in touch with Innes Reid and see how we can help!
