Pensions can be confusing, and you want to make sure that you fully understand all the rules so that your retirement lifestyle is secure

Pensions can be confusing, and you want to make sure that you fully understand all the rules so that your retirement lifestyle is secure

A pension plan is one of the best ways to keep yourself and your family financially stable after you have retired from your current work.  Paid in regular monthly amounts, such accounts can be funded by employers, insurance corporations and other government institutions.

To prevent any untoward problems in the future, you should be fully aware of your pension payments and benefits.  Here are several important facts you need to know about your retirement plan:

  • The amount you should contribute to your pension pot should be half your current age (in percentage, of course.)

For example, if you are 40 years old, rule of thumb dictates that you should allocate 20% of your salary to your pension plan.  This is a big amount, but you can put it into your retirement savings by increasing your contributions every time you get a pay raise.

  • Save into your pension plan at the earliest possible time.

Starting at age 50 or older means you need to dedicate 25% (and more) of your salary to your pension pot, as rule of thumb.  Instead of trying to catch up – which can be difficult if you are paying debts or mortgages – the best way to create a healthy retirement savings is to start while you are still young, single and at the prime of your career.  That way you will already have a significant amount of savings, and you will not be pressured to contribute everything you have in your pocket.

  • A pension can help you circumvent the government’s tax cuts.
Sometimes your pension money is locked away from you unlit a certain age.  At other times, the lock is the threat of taxes that need to be paid

Sometimes your pension money is locked away from you unlit a certain age. At other times, the lock is the threat of taxes that need to be paid

As the citizen of the country, the government is entitled to take a certain amount – tax – from your pay slip.  However, if you want your tax payments to go into good use, what you need to do is to apply for a pension plan.  This retirement account qualifies for tax relief, so instead of letting your hard-earned money end up with the government, you can have it directed to your pension plan instead.

  • You cannot withdraw cash from your retirement fund on demand.

Generally, the money in your pension pot cannot be withdrawn until you are 55 years old.  By then, you have the option to withdraw 25% of your savings as lump sum, and have the rest given to you as the months go by.

Having a pension is a good thing especially if you know how to take care of your money pot.  By being fully-informed of these pension know-hows, you are sure to live comfortably (if not lavishly) after you retire.

What do you think about these pension constraints?  Are they worth the inconvenience or does the forced savings toward your retirement worth it?

4 Responses to Things You Need to Know About Your Pension

  1. Honestly some of the restraints aren’t that bad. And for some people I think its best so that they don’t mess it up. I know people who if it weren’t for the pensions they would never be able to retire. I honestly think we need something that forces (I know sounds bad) people to put at least 4-10% of their pay away for retirement.

    • pradmin says:

      No, many aren’t that bad, and many folks are probably better off that they can’t access these funds more directly. And the US already has something like that, if you consider social security and medicare. That’s a pretty big chunk of your paycheck, even though many call it insurance. When you consider the employer paid portion (which could theoretically come to you instead) were talking about 15%.

  2. I decided earlier this year that I’m going to put as much as possible towards retirement so I don’t have to work until I’m 65. My first goal is to max out my 401k at $17.5 k a year. I’m almost there, but still have a few more grand to go. Hopefully within the next 1-2 yrs I can get up to that amount.

    • pradmin says:

      There is certainly an advantage to putting away as much as you can so that you can retire earlier and/or have a great retirement. However, that does make a fairly large assumption that you make it to retirement. Who knows what could happen either on the way to retirement or just after retirement. I certainly understand the idea, but I also know the value of having fun during your working years to enjoy life and keep the stress down.