If you’re in your 50s or 60s you’re probably quite looking forward to the day where you can stop working. However, it’s worth asking yourself if there are any particular financial aspirations you wish to achieve before you leave the world of work and enjoy your golden years. Should this be the case, you might wish to think about releasing money from a pension fund in advance.
Doing so could enable you to obtain a sizeable proportion of your retirement savings while you’re still in work, which in turn could provide you with the scope to meet a great array of financial goals. With that in mind, here are some of the things that an early cash withdrawal from a pension fund can be used to achieve.
Create an additional source of revenue
Although working fewer hours prior to retiring altogether may be an enticing proposition for many older people, it’s worth remembering that becoming a part-time employee will result in a drop in income. Releasing cash from a pension fund can help to bridge this gap, however, and the money that is taken out can be converted into an additional source of taxable income.
Alternatively, withdrawing money from a pension could be used to pay for one-off things that demand a substantial expenditure upfront. Whether consumers are looking to improve their property or go on an unforgettable holiday before they retire, releasing pension money in the form of a lump sum will give them the scope to meet their financial aspirations.
Of course, it is possible for older people to obtain the cash required to do these things by applying for a bank loan. However, it’s worth remembering that as such consumers are likely to be giving up work in the relative near future that they are unlikely to earn a vast sum of money from their job. As this debt is likely to be paid with cash from their retirement pot, it might make a greater deal of sense to use pension money directly to meet such expenses.
Releasing a portion of a pension fund early is also a great way for those approaching retirement to reduce or pay off any debts that are looming over them. As it’s possible to take out up to 25 per cent of a pension ahead of retiring, consumers ought to find that they can quickly settle bills for loans and credit and store cards.
This means that when the point comes for them to retire completely, people can do so without having to worry about how you will manage to repay their debts.
Frees up money to invest in other areas
Withdrawing money early can also be a good option for those who believe their cash would be better off invested in other areas than a traditional pension. The global economic crisis of recent years has meant that many pension schemes do not offer as high returns as they once did, so if you feel your current plan will not provide as much money as you hoped, it’s worth taking some cash out to reinvest in other assets. Whether you choose to place such cash in property, ISAs, bonds or other products, taking this route offers the chance to generate a significantly higher pension income.
If you’re thinking of releasing cash from a pension early, what do you plan to use the money for? Please leave a comment below and let us know!