The abundance of retirement resources and advice available, while useful, comes with a challenge in itself – knowing which information you can trust.

Long story short, it can be somewhat difficult to really know what’s what. In this article we break down some of the most common myths that our team sees and hears quite often.

Retirement is like a 30-year holiday

A life full of leisure must be great, right? Not really. Too much free time leaves many retirees feeling depressed and unimportant. Studies show that people who keep working after 65 tend to be happier whether or not they do so by choice.

Among all, voluntary part-time workers are the happiest. While money is the main reason for continuing to work in retirement, stimulation and satisfaction are just as important.

Money is most important to happiness in retirement

The biggest key to a happy retirement is good health. If you have financial security, you have enough. Money only correlates with happiness up to a certain point. You can still enjoy a happy and fulfilling retirement even if you are not a millionaire.

Spending is consistent in retirement

People generally spend less in retirement, but that’s not always the case. Many spend the first few years traveling, and as years go by, the number of trips decreases while health care and family costs increase.

The state will provide for me

The new state pension pays £185.15 per week, which works out at around £9,600 per year. This is unlikely to provide for even a very modest standard of living for a single person.

Depending on your working history, you might find you do not qualify for the full amount. You can check your state pension entitlement at gov.uk/check-state-pension.

Annuities are dead

Since the introduction of pension freedoms in 2015, income drawdown has offered pension savers a more flexible approach to producing a retirement income. Meanwhile, annuities have become increasingly unpopular, being plagued by limited flexibility and poor rates.

But annuities can be a useful part of retirement planning, by providing a secure income to cover everyday bills, for example. Purchasing a guaranteed income for life in the form of an annuity could be invaluable for many people.

Tax-free cash is always 25% of your pension pot

The headline rate of pension tax-free cash is 25%, but some pension savers with older style company pension schemes may find that they have a greater amount of protected cash available. Yet many people in these occupational schemes often forget that they are eligible for this.

It is always worth enquiring about your pension’s benefits, rather than assuming they are the same as other schemes. An adviser can help to clarify your situation and ensure you don’t lose valuable benefits.

I can’t exceed the lifetime allowance

The lifetime allowance, which currently amounts to £1,073,100 for most people for the 2022/23 tax year (and frozen until at least 2026), is not a maximum cap on pension savings. You can accrue more than this in total within all of your pension plans, but you may face a tax charge.

The amount of tax you pay depends on how you draw the money and can amount to 55% on the excess if you take it as a lump sum or 25% if drawn as an income or placed in a drawdown plan. A good adviser will be able to work out a plan to create a tax-efficient drawdown strategy.

I can’t take my company pension before 65 because I will pay a penalty

Benefits taken before age 65 may be subject to a penalty, but it might be worth it. If you take benefits early from a defined benefit (or ‘final salary’) scheme, there could be a reduction in available income. You would be getting a lower pension, but for a longer period. This could, for example, potentially put you in a lower rate tax bracket, or bring benefits below the lifetime allowance.

However, you might want to consider what other savings you could access first, such as ISAs or other investments.

I am OK because my retirement savings are in a default lifestyle fund

This might be the case if you are planning to retire at your normal retirement age and looking to purchase an annuity. But, if you are planning to retire in a more flexible way, by taking semiretirement, say, or working longer, then looking at which default fund your pension is invested in is particularly important.

Most default funds shift your money into cash and bonds the closer you get to retirement to avoid any sudden losses. However, this approach is unlikely to be appropriate if you are planning to use income drawdown.

My pension dies with me

A defined benefit pension scheme might be limited to paying an income to your dependant. However, most other pensions enable you to leave your pot to a beneficiary, and they don’t have to be your partner. Make sure that your provider knows who you would like to leave your pension to by completing an expression of wishes form. You can name as many beneficiaries as you like, but the pension scheme trustees usually have ultimate discretion as to who receives your fund.

If you die before age 75, pension benefits can usually be passed on tax free. Bear in mind that if you take your tax-free lump sum but do not use it before you die, it becomes part of your estate and your beneficiaries might pay inheritance tax on it.

I am in a workplace pension and so don’t need to worry

For most people, simply enrolling in your company pension scheme will not be enough for a comfortable retirement. It is quite possible that someone could save for 40 years in work to fund 30 years in retirement. So, the amount required by a basic workplace pension may well not be enough.

Seeking financial advice can clarify your retirement strategy, reduce tax liabilities, and ensure your plan is specifically tailored to your individual needs.

Financial planning stops at retirement

You still have many issues that you need to deal with during retirement. You need to continue planning of your investments to make sure that your money can last as long as you do. You may have estate concerns and health issues that require long-term care.

Retirement is not what you retire from, but what you retire to. Just because you reach a certain age, it does not mean you have to stop working. And to stop working does not mean you stop planning for your life.

There are many considerations when it comes to your phased and full retirement planning, but fundamentally, the sooner you take advice the more likely it is that you will make your retirement goals a reality. At Grosvenor Wealth Management, we’ll talk through your individual circumstances, weigh up the potential advantages & disadvantages, and advise you on all the implications and possible alternatives, so you can make an informed decision.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority do not regulate tax planning, estate planning, or wills. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.