Sensible spending in retirement is not all about budgets and spreadsheets but the order in which money is spent as well.
That’s why working out which money to take first is important.
That’s why iExpats has come up with the five golden rules of retirement spending.
1. Shop around for the best deals
Official data from the Financial Conduct Authority, the watchdog that looks after pensions, savings and investments, show most people stick with their provider when setting up a up pension drawdown.
You don’t have to be loyal and can look for the best deal – a survey in Which? magazine suggests staying with your provider could cost up to £12,000 in lost income over a 15 year drawdown.
2. Don’t stash your cash in a bank
What’s the point of withdrawing income earning cash from a pension to stick in a bank account or other savings wrapper that is charged to income tax and inheritance tax?
You are just giving your money to the tax man for nothing.
3. Work out your spending order
Instead of depleting your pension, spend money that costs you the most in fees and tax, leaving ISAs and pensions to last so they can continue growing in a tax-free environment.
4. Do you really need to draw cash at 55?
It’s tempting to dip into your pension as soon as the money is available to take, but do you really need to?
Everyone would like to stop working as soon as they can, but you will miss out on all those years of income and saving.
You will pay more tax as well – on your earnings and pension drawings.
5. Spread the tax
Most of us will pay tax at the higher rate (40%) if we take our pensions all in one go.
It’s more sensible to work out when you need the money and start drawing for big ticket items early – or across two tax years in March and April – rather than taking a big hit.
Spread those withdrawals and stay in the basic rate tax bracket (20%) to save your hard-saved cash.
If in doubt about how to plan your spending, consult a financial adviser. You may have a fee to pay, but for many, that’s money well spent.
