4 of the most common retirement planning regrets, and how to escape them

businessman sat on sofa with head in hands

As the great Frank Sinatra once sang: “Regrets, I’ve had a few”.

Over the course of your life, there are likely to be things you would do differently if you had your time over again. However, when it gets to your retirement, there is often less of that time to repair any mistakes that you make.

A recent survey reported by Money Marketing revealed that a third of retirees would make different choices regarding their retirement planning if they had the chance to do so.

Many of these missteps are entirely avoidable, so read on for the four most common retirement regrets and how you can swerve them.

1. I would ensure I had a greater guarantee on my income

When asked, the most common regret retirees had was that they had not ensured they received a greater portion of guaranteed income.

If you have a final salary pension scheme, or you’re at State Pension Age, then you will benefit from a fixed income. You can budget knowing exactly what your pension will pay you from year to year.

If most of your retirement savings are in a defined contribution pension – or you have significant other savings and investments – you may have to draw down your fund to create your own income. That can be more complex and can often lead to fears about “running out of money”.

One simple way to create a guaranteed income in retirement is to consider an annuity. Essentially, you use a lump sum to “buy” a guaranteed income that will often rise in line with the cost of living and pay a sum to your spouse or partner if you die.

It gives you the peace of mind that you’ll receive a guaranteed amount each month, enabling you to “top up” your income needs from other sources.

Annuity rates have risen in the UK in recent months, meaning you may be able to generate a better income from your savings. However, remember that an annuity typically can’t be reversed, so it’s always worth seeking advice on your retirement options before you decide to sign on the dotted line.

2. I would take less from my pension upfront

When you retire, you can typically take 25% from your pension as a tax-free cash sum.

However, a fifth of retirees say their biggest regret was taking too much cash from their savings upfront.

When it comes to accessing your pension fund, think carefully about whether you need to take a lump sum at the outset. If you have earmarked this money for a specific purpose, then it might prove useful to take the 25%.

However, if you don’t need the money, leaving it invested so it has the potential for further growth could leave you in a much healthier position later on.

Don’t simply take the tax-free cash because you can.

3. I would look for a more tax-efficient approach

When asked, 1 in 5 retirees said that, if they could plan their retirement again, they would take a more tax-efficient approach.

When you draw your pension, anything above the 25% tax-free cash will normally be added to the rest of your income in the tax year you drew it. So, if you take a large lump sum from your pension, you could easily push yourself into a higher tax bracket and lose 40% or 45% of your hard-saved pot to Income Tax.

This could then leave you with insufficient money to live the lifestyle you want.

Additionally, when you die, pensions can ordinarily be passed to the next generation tax-efficiently, whereas Inheritance Tax (IHT) could apply to any savings or investments you hold.

So, drawing from your savings first rather than your pension could also leave you in an advantageous tax position.

Again, advice at this stage can help to ensure you don’t pay more tax than you need to. Read more about the pitfalls of accessing your pension without advice in our blog.

4. I would opt for greater flexibility

Perhaps the reverse of the most common regret, 19% of those questioned would opt for greater flexibility if they could restart their retirement plan.

With many retirees regretful about the choices they made – many wanted either more or less flexibility than they have! – it shows just how complex your “at retirement” choices are.

These days, you have more choices than ever before when it comes to structuring your retirement income. Many clients draw income from a combination of sources – annuities, flexi-access drawdown, savings and investments, a final salary pension, property, and the State Pension.

All these have their pros and cons, as well as their tax complications. So, if you don’t want to have regrets in years to come, speak to us, and we can help you create a plan that works for you.

Email or call us on 01454 416653.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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