Do You Really Need Tax-Free Cash?

Too many people just take all the cash that’s available from their pension as a kind of default option, and nothing at this crucial point in your financial life should be default, because you’re being intentional. Ask yourself: do you really need to take the tax-free cash from your pension?

One factor in the decision will be your cash needs in the early years of retirement. But if you have other sources of cash put aside that you can get at, it might make sense to leave more in your pension fund and use the tax-free cash element of any future drawings available for planning.

Any cash you take out of a pension is now in your estate, and if you die will be counted in the calculation for inheritance tax. Money left in a pension will not – a crucial benefit of drawdown.

Money in the bank is more easily spendable, so that’s another reason why it might make sense to leave it where it is. In short, don’t take the tax-free cash just because you can. Instead, think it through as part of your overall planning.

Simple is Best

I talk about this a lot, but there are massive benefits to be derived from simplicity. Managing money is a pain in the backside at the best of times, so anything you can do to make your own life easier, the better.

Maybe it’s just me – am I lazier than the average person? I don’t know, but my aim in life is to spend as little time on my finances as possible, without abdicating the responsibility for making sure they’re on track.

Try not to overthink this. Don’t be drawn by fancy mechanisms that generally make the purveyors of those plans richer than you. Most of us never need anything fancy, you just need options to be able to draw the money you need, when you need it, without paying unnecessary tax.

If you want to reread the previous post, do that now. Or keep going!