For retirees short on additional funds, the state pension can be a safety net which ensures that everybody has a basic income to fall back on. However the costs of retirement can quickly mount up, leaving one big question: would you be able to survive with the state pension as your only form of income?
Well, according to our analysis of statistics from the Office for National Statistics, a typical pensioner will need a minimum income of around £10,832 per year to cover their day-to-day costs. Unfortunately, this is still significantly more than the full state pension: a gap of over £2,500 potentially means struggling to meet day-to-day costs.
This research highlights just how important it can be for people in retirement to have access to additional sources of money. For many, this will be a private pension or workplace pension, built up over many years. However, even if you do have one of these pension funds in place, you may still need to be careful.
When the time comes to take your pension, you have a number of different options – you can take it as a guaranteed income in the form of an annuity, take the cash in chunks or even leave the pot untouched until a later date. There is also the option to take the whole pot as cash (typically, the first 25% is tax-free).
While there’s no wrong choice, it’s very important to think carefully before making this decision. It may be tempting to take a large chunk of your pension early on in order to enjoy the first part of your retirement without really considering what’s going to happen in 10 years’ time. Underestimating your life expectancy and using funds too early could cause issues in the future!
Take advice before deciding how to take your pension
Once you’ve made that decision, it’s done – so if you take a lump sum and don’t end up spending it wisely, you can’t simply change your mind. This means that talking to a professional can be a really helpful way of working out which option best suits your objectives. The Government's Pension Wise service is a great place to get information: you can learn more about your pension options on their website, where you can also book a Pension Wise appointment
. These appointments are free of charge and offer specialist pension guidance.
We have some information on the retirement options
section of the Key site, designed to help you understand what each option can offer: read about each alternative and get all of the facts before making any decisions.
There may be alternative options available
If you’re already struggling to make ends meet, or you are concerned that you don’t have the funds available for a comfortable retirement, then there are other options out there. Some people choose to downsize or ask family for help, while there may also be the possibility of releasing some of the cash from your home through an equity release plan.
Equity release is a way of unlocking some of the cash from your home without having to sell up and move out, and could help you if you’ve found that you are cash poor but equity rich. Download a free guide to learn more about what equity release involves. Equity release will reduce the value of your estate and may affect your entitlement to means-tested benefits. The most popular type of equity release, a lifetime mortgage, is a loan secured against your home. If you are considering going ahead with equity release, please read 'Is it right for you?
' carefully first.
Download your free equity release guide
Get all the facts about equity release, and learn more about what's available