When you receive your paycheck each month it can be disheartening to see how much has been stopped despite knowing it is for the best and protecting your ready for old age. Pension contributions are one of those things that we know we need to be doing but we fantasise about what else we could spend the money on! Understanding the advantages of a drawdown calculator could sweeten the stoppages!
Now that many of us are paying into private pension funds there is a concern that individuals do not put all that they can into their pension pot and instead keep too much money in a savings account so that they can access their money if they ever need it. I know that this is something that I am personally guilty of. I keep too much money in my savings account which does not yield a good return in the long term. I also keep money in premium bonds that would actually be better elsewhere, yes I do ‘win’ most months but again the return isn’t reflective or comparable to being in a well-performing pension pot.
Pensions have changed in recent years to be more receptive to our needs and now it is possible to access some of your pension from 55 years of age, which gives more flexibility to us as consumers. There are, of course, a number of considerations to take as there are both advantages and disadvantages of doing this. Although this facility would encourage me to put more away rather than leaving it in my current account.
Pension Bee have addressed this issue with their new drawdown calculator tool which clearly illustrates how by using drawdown you can take income directly from the pension fund, which stays invested. Income drawdown is one of the options for using your pension when you reach retirement. It means leaving your pension money invested and taking cash as and when you need it. It’s the main alternative to buying an annuity with your pension money.
The Drawdown Calculator Works in the following way
- Enter your pension balance. You can only calculate for pensions that have not yet been accessed, so please bear this in mind when entering your balance.
- Check the tax-free cash available. Under current legislation, you can take up to 25% of your pension tax-free, as a lump sum or in portions.
- Tell the calculator how much tax-free and taxable cash you would like to take.
- Check the calculations to see how much tax you’ll pay and the amount you can expect to receive.
You can find the calculator by following this link.
This firmly puts us in more control with our finances and lets us make informed decisions. Therefore you can take that trip when you retire that you have always wanted to, buy a new sofa, a new car or renovate your home if you so choose. The drawdown gives more freedom to let you have the money that you have worked hard for.
Watch the video explainer which simplifies the process and takes away all the jargon!
As Faith explains there are things to be cautious of, with the main concern being withdrawing too much too soon and leaving you short later on. Therefore you do need to understand the implications as you do with all financial products. However, this can be a great way to make the most of your money whilst you are in a position to still enjoy it. Remember, I’m not a financial adviser, if you’re unsure about your options, speak to a qualified financial adviser.