If you’re planning to take your whole fund as cash… - Aviva

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If you’re planning to take your whole fund as cash…

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From the age of 55, you have the freedom to use your pension money how you want. One option is to take the first 25% tax-free, with any further withdrawals counting as part of your annual income. It is also possible to take the whole amount as a lump sum.

People who are intending to take out the whole of their pension pot, not just the tax-free bit, should consider moving their investments into cash during the period running up to the date they intend to withdraw the money.

People who are thinking about taking all their savings out bit by bit, over anything up to five years from retirement, should also consider doing the same.

Investing in cash: both sides of the argument

Historically, cash hasn’t provided very good returns over the longer-term. In fact, in many 10-year periods, cash has struggled even to keep pace with inflation.

That means that, when you are still saving up for retirement, investing in something a bit riskier may potentially help you build a bigger fund at retirement – although you should always bear in mind that the value of investments can go down as well as up, and you may not get back what you invest.

However, as you approach retirement, if you have plans to take your whole fund as cash in one go or spread over two to five years (usually to minimise the tax you pay), then moving your savings into cash will help you plan with more certainty.

Consider shifting one-fifth of the fund each year into cash over the five years preceding your planned retirement date. Then, by the time you reach your planned date, your whole fund will be held in cash. 

Finally, a reminder to think carefully before you make a decision. If you spend all the money from your pension now, you won’t have it when you might need it later on – once it’s gone, it’s gone.

 AR011020 08/2017

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