8 Tips for Getting the Most Out of Your Pension
Understanding the importance of investing in your pension and having a proper pension arrangement has some advantages. Once you retire, you will experience a reduction in income and a pension plan makes up for some of this loss of revenue and provide protection in the form of lump sum payments to dependants in the event of a member’s death.
The State provides tax relief on contributions made to pensions schemes. Growth in your investments is an incentive to encourage pension planning. Avoid the common retirement excuses and take control of your retirement planning and make decisions regarding your retirement. You are ensuring that you and your dependents receive a basic standard of living in retirement.
The benefits payable under pension arrangements depend on your personal and work situation. Even if you are a member of a pension scheme or have taken out a private pension or Personal Retirement Savings Account — PRSA, you may need to consider paying more into it. You should also continue to review your pension position on a regular basis. The most important situations to focus on is where you have less than the maximum pension in your current scheme. Your projected benefits are not likely to be sufficient enough to meet your needs, or you have started saving at a later age, and you want to provide additional benefits.
It is, however, very advisable to start making contributions as young as possible and contribute as much as you can, even if that means starting low and increase over time. This ensures that you have an incredible cushy landing once you retire. The transition from work to retirement is an already difficult pill to swallow for many people, and the last thing you need is being financially stressed and strained.
Pension planning will allow you to enjoy the rest of your life with a smile on your face knowing that your hard earned pension savings will be there to support you and your leisure ambitions. That is the beauty and benefit of a self-invested personal pension plan.
Here are additional tips to help you achieve the best out of your pension fund:
1. Choose a pension scheme that works for you and if at some point you have concerns that something is not right with your pension scheme, raise the issue with your employer or a trustee in the first instance so that you can get the best possible pension. Checking the accuracy of your benefit calculation before retiring is advisable to avoid last minute surprises.
Your pension scheme should be able and willing to provide you with an annual benefit statement showing what you are entitled to, based on your contributions. The one mistake that most people do is only look at their pension shortly before they plan to retire. Waiting too late will not allow enough time to make adjustments.
2. Keep records of your employment history, all correspondence, and any notices or documents relating to your retirement plan benefits. Work out exactly what pension assets you have by locating and consolidating all your pensions and calculating how much they are worth in total. If you’re concerned you might be missing something, approach a financial adviser.
3. Consider your payout options, for instance, if you need the full pension amount or a percentage of it. You may not be able to modify your original decision when the time comes to receive your pension. In case you have a chronic disease that impacts your life expectancy, then a lump sum payout may be a better option as it allows you to allocate the rest of the remaining money to your loved ones.
4. Choose your financial advisor very carefully because you do not want to end up with a person who interested in what they can get out of your investment. Some advisors see your benefits as a payday for them. Seek guidance from a professional who has your best interest and is not influenced by their compensation.
5. There are advantages of delaying your social security benefits as you get closer to retiring or after you reach 71 years of age. Your tax-free monthly benefit will increase, and the additional income adds up quickly.
6. Understand and consider potential retirement venues, solutions, and options when planning for your retirement such as properties, savings and enterprise investment schemes. Some pensions come with Social Security offset provisions. Pensioners who don’t elect their investment options usually find themselves invested in default options.
7. While having a pension plan in place is a good idea, your spending habits also apply after you retire. Confirm if there are restrictions on continuing to work after you start collecting your benefits as you may benefit from the stability of a monthly income when you need access to larger amounts of cash. Create a monthly budget of your recurring expenses, including your savings contributions as a monthly expense that will show you where your money’s going plus sticking to a budget, will help keep you from outliving your nest egg.
Also, your marital status is taken into consideration because the payout is typically higher for single-life annuities. Contribute as much as you can for as long as you can to see the greatest benefit from your pension.
8. Consider other ways to save for your retirement that allow after-tax savings and withdrawals and help you hedge against the possibility of future tax increases during retirement. Options such as the traditional IRA give you more control over your investment selections and broaden your retirement savings plan.