Local independent financial adviser, Becky Hammonds of Willow Financial Solutions, looks at some of the common mistakes to avoid with income drawdown.
Drawdown is an effective retirement strategy but some savers make simple mistakes. According to a survey by Which? Magazine, one of the simplest errors can cost you £12,300 in lost pension income.
Savers spend many years saving for retirement and it is heart-breaking when people make mistakes which could have easily been avoided.
A common mistake is underestimating how long you are likely to live after you stop working.
Life expectancy in the UK for people aged 65 is now 85 years for men and 87 years for women, official figures show. So, your pension should stretch for at least 20 years.
Another drawdown disaster sees people paying too much tax on the income they take from their pension.
You can take the first 25 percent of your pension free of tax, in a defined contribution scheme, but the remaining 75 percent is added to your income tax for that year and taxed accordingly.
If you draw down large sums it will drive up your annual income for that year and may pay income tax at a higher rate – basic rate 20 percent taxpayers could suddenly find themselves paying 40 percent tax as a result.
Taking smaller amounts each year from your pension to keep within your tax bracket is advisable.
The third big mistake is failing to shop around at retirement for the best value products, such as drawdown or annuity plans.
The difference between the cheapest and most expensive income drawdown plan for a £250,000 pot is an incredible £12,300 lost in charges over a 20-year period, research from Which? shows.
It is difficult to check how much you are paying because drawdown plans have up to six different charges, but an adviser can help.
If you have concerns about your pension or are looking for an independent appraisal or help starting a pension, contact Becky Hammonds on 07969 269677 or email firstname.lastname@example.org.