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7 ways to fund your retirement

7 ways to fund your retirement

Category: Retirement

Updated: 28/08/2014
First Published: 27/08/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

You've worked hard all your life, saved harder, and are now left with savings and a pension pot that will see you through your retirement. But, there's more to it than blindly spending your cash – you need to make sure it'll last 20, 30 or even more years, and that's why it's so important to find the right way to fund your retirement. Here are seven options you might like to consider.

  1. Annuities. Despite the flexibilities announced in the 2014 Budget, purchasing an annuity is still likely to be a top choice for a lot of retirees. An annuity is the only way to secure a guaranteed income from your personal or workplace pension for the duration of your retirement, so if you don't want to worry about your pot running dry in a few years' time, this could be the solution.
  1. Income drawdown. Income drawdown is a popular alternative to annuities, and it could become even more so when the pension changes have taken full effect. A drawdown pension allows you to draw an income from your pension savings with the remainder staying invested, giving you the chance to continue building your pot as you fund your retirement. The drawback is that there's no guarantee of a secure income and there's the possibility you could spend your fund too soon. However, if you're sensible and have a clear plan in place – or perhaps opt for capped drawdown instead of flexible drawdown, which limits how much you can withdraw each year – it could well be a great option.
  1. ISAs. Hopefully you'll have been squirreling away money into an ISA as well as a personal or workplace pension, and here's where it can come into its own. Quite simply, you'll be free to spend your savings however you choose, but you might like to transfer your pot to an account that pays interest monthly. Doing so will help supplement your income whilst keeping your capital invested, and if you opt for an ISA with limited restrictions you could still have access to the remainder if you needed to top-up.
  1. Investments. If you're particularly financially savvy, or have amassed a significant amount of savings, you might like to use some of your money for the riskier option of investing in the stock market. Ideally you'll want to keep it in an ISA wrapper – stocks & shares ISAs can offer the perfect compromise of the potential for better returns with the added benefit of tax-efficiency. If you're comfortable with the extra level of risk, and can keep your money untouched for a few years to give it the chance to grow, it could be a great way to secure an income for the future. Alternatively, you could move the investments you've already made into income funds, but this (and indeed all kinds of investment) will require careful consideration with a financial adviser.
  1. Buy-to-let. Another option for the financially savvy, buy-to-let is growing in popularity for retirees who want an income as well as an investment for the future. Arguably, it could become an even bigger market when the pension changes come to fruition – the chance to access an entire pension pot at a nominal rate of tax could well prove tempting, and a lot of retirees might decide to withdraw the lot (or a large portion of it) and make their own investment decisions. Buy-to-let could be that investment, with the rent that can be generated from such properties potentially offering a viable income stream throughout retirement, but there'll still be an element of risk so it's important to consider things thoroughly.
  1. Equity release. Equity release could be a great way to boost your savings pot, and you could turn the money generated into a valuable additional income. Equity release is simply a way of freeing up some of the money tied up in your home – effectively, you're given a long-term loan which will be repaid either when you sell your home or when you die. Considering that you're quite literally living in your biggest asset, it could be a solution for those that have paid off their mortgage and want a cash injection without having to move, but you'll need to be aware of the additional restrictions, costs and risks involved.
  1. State pension. The state pension will give you an income for life, provided you've paid enough in National Insurance contributions. However, this invariably won't be enough to fund the retirement you want – currently the basic state pension is £113.10 a week – so although it can prove vital and will be a valuable source of income, most people will want to supplement it with other forms of savings or pension arrangements.

These are just some of the most popular ways to fund your retirement, and many people will opt for a combination of the above to ensure they can make the most of the cash they have available. But, no matter how you want to go about it, make sure to seek suitable advice first. There are a lot of different aspects to consider and all options have their benefits and drawbacks, so always seek professional input and you can turn your savings into an income for a comfortable, enjoyable and stress-free retirement.

What next?

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.