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Timing Your Retirement


I am thinking about retiring soon and converting my pension pot into cash and income. Is this a good idea at the present time because the value of my fund has fallen or would it be better to delay until next year?


This is great question because a lot of people will be thinking about this. Although it is a simple question, the answer is complex.

Generally speaking, there are four things you need to consider:

  • Do you need cash or income now?
  • Your age
  • Your tax position
  • The state of financial markets

Do you need cash or income now?

If you want to access the 25% tax-free cash or need income, it will make sense to consider taking your pension.

You can take the 25% tax-free cash without taking an income. When you need an income you can arrange and annuity or take income by way of pension drawdown.

Your age

Although you can access your pension pot any time after age 55, you should only access your pension when you are relatively young if really need it.

It is difficult to decide when to work out when is the optimum age to start taking your pension but for most people it may be when income from work or business stops and you need to replace this income from savings or personal pensions.

Don’t forget, if you take cash and income too early you may not enough money in later life and if you leave it leave it too late you will not the maximum benefit from your pension but you will leave an inheritance.

Your tax position

If you don’t need additional income, it does not generally make sense to take income and pay tax on it because it can remain invested in a tax privileged pension pot.

If you can, it is obviously better to avoid paying higher rate tax.

The state of financial markets

It is obviously better to avoid converting your pension into cash and income when your pension pot has fallen in value, and if you arranging an annuity is obviously better when to do this when rates are not at rock bottom.

However, getting the market timing right is difficult but there are several things you can do to avoid losing out from a stock market crash or low annuity rates.

These include, moving into safer and lower volatile funds before retirement and purchasing annuities in stages.

Although it might be tempting to delay your retirment plans in the hope that financial markets will improve, it is possible that fund values and annuities could fall even further.

Get advice

As the answer to this question shows, working out when is the best time to convert your pension pot into cash and income is very difficult.

There is a lot at stake so you get specialist financial advice.

William Burrows

About the author

William Burrows

William has been involved with retirement options for nearly 30 years, advising clients on all aspects of annuities and retirement income options.

He is a regulated adviser with Better Retirement where he is the Retirement Director. He has have many years of practical experience in advising clients about all aspects of pension options at retirement and he is passionate about helping people make the right decisions about their pensions and retirement income.

William also publishes guides including the popular ‘You and Your Pension Pot’ and ‘The Retirement Journey’.

He is frequently quoted in the national press and appears on radio, podcasts and videos and writes extensively on retirement income matters.

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