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Six retirement money management tips

December 2017

Tags: Retirement

Knowing how to manage a pension pot can be complex – even if you have had access to it for a while. But there’s a lot you do to make sure you get the most from it.


Below are some of the options that many people face when they are working out what’s right for their pension pot at different stages of retirement.


Just retired?

It’s worth remembering that just because you have reached retirement age and given up work, you are not obliged to start using your pension straight away. However, when you do eventually want to access your pension pot, whichever option you take, you can usually take up to 25 per cent as a tax-free lump sum.  

The options are:

  1. Use the funds to buy a guaranteed income, known as an annuity, which will pay you an agreed monthly amount for the rest of your life. This is done through an annuity broker and there are many comparisons available online as to which one might suit you best.
  2. Take the cash in chunks, called flexible drawdown, and set dates for how much pension money you want to take and when you want to take it. The first 25 per cent of each chunk will normally be tax free.
  3. Take your whole pension pot as cash. Anyone can access their entire pension pot from the age of 55. If you do this, the 75% on top of your tax-free 25% will be taxed as income in that year, along with any other income from savings or investments that are not held in tax-free wrappers, such as ISAs.
  4. A mix of the above. So you could buy an annuity with some of your pot, and take a variable income from another portion. If you have more than one pot, from different employers, you could take a different approach with each.

Increasingly, retired people are choosing to access more of their pension pot and to invest it elsewhere instead, preferring to seek income from investment sources, rather than annuities.  Anything taken out above your 25 per cent tax-free lump sum will be taxed at your usual income tax rate, although you won’t pay tax on income earned or capital gains if you then put that cash in a tax efficient account such as a Stocks and Shares ISA.


How to receive a retirement income without buying an annuity


Taking your pension pot and investing it instead could provide you with regular retirement income without having to pay for an annuity, and there are a range of investments that can do this for you. Generally speaking, returns from stocks and shares can either come in the form of capital growth, or income.


Seeking income from your investments

Income from an investment usually comes in the form of a dividend (Learn more about dividends here). Investments that pay dividends are the bread and butter of a typical retired person’s share portfolio, and can be achieved using stocks and shares, mutual funds or exchange traded funds (ETFs).

If you are picking stocks for yourself, you can look up the dividend for any particular stock. The top-paying dividend yields in the FTSE 350 range from around 5 per cent to 13 per cent, with risk rising accordingly.

If investing in equities for income, one thing to be aware of is that if a company is paying out a lot in dividends it is unlikely to be reinvesting its profits for growth. For this reason, a high dividend yield can be considered a sign of a company’s weakness and therefore an indicator of higher risk. Looking at the dividend growth would be a much better indicator that the company’s cash flow can sustain and grow their dividends year on year 

If income-generating investments are held in a Stocks and Shares ISA, then income or gains from investments are earned tax-free.

Learn more about our Stocks and Shares ISA

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Or open a Stock and Shares ISA today

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Seeking income from investment growth

If you have enough income from other sources to live on, you might wish to invest your pension pot for capital growth instead, meaning your aim will be to buy investments that increase in value over time, with a view to selling them when you need the cash.

Investing in individual stocks and shares offers the potential to achieve high capital growth, although the higher the potential gains, the higher the risk. If you will need some of this money for income at a later stage, chasing capital growth by taking on risk may not be the best strategy for you.

However, there are plenty of investment options to consider that will lower that risk through diversification, including traditional funds that invest in a mix of different asset types and sectors.

Learn more about mutual funds

Learn more


Don’t be afraid to seek advice

Whether you have just retired or have been retired a while, the choices you make for your finances are important and should be carefully considered.  Many people consider paying for financial advice an expense they can’t justify, however, a one-off payment for guidance from an experienced financial advisor can help you make sure you’ll get the most out of your retirement fund for many years to come.  


Retired a while?

If you have an existing annuity, you can’t replace it with a new one. But if you have some money left in your pension pot, an ISA or a savings account, you can still make some changes to help boost your retirement fund.

If you don’t already have one, opening up a Stocks and Shares ISA will allow you to invest your money, up to the value of £20,000, without paying any income tax on any profits you make.

Learn more about our Stocks and Shares ISA

Learn more

Or open a Stock and Shares ISA today

Open an ISA


Rebecca is an award-winning finance journalist and the Co- founder and Director of Good With Money

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Selftrade does not provide investment advice. This article is the authors view and is not the view or opinion of Selftrade and Selftrade accepts no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.

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