If you are nearing retirement age or are already retired, you may be thinking about the best way to plan out your future income. While you may be paying into an occupational or personal pension plan as well as being entitled to your state pension, you may also have savings which you wish to get the most from. Here is some retirement saving options to consider.
1. New ISAs (NISAs)
With an ISA savings account, there is no tax relief on the contributions you make. You don't pay tax on the interest or most dividend income earned– up to an annual limit. You also don’t have to pay 'capital gains' tax if you later sell the investment at a profit. From July 1, savers have been able to deposit up to £15,000 into a cash ISA, up from the previous limit of £5,940. For more information, read this article on the best ISA rates available.
Fixed – Rate ISAs vs. Easy-Access ISAs
Typically, a fixed-rate ISA account will pay more interest. In exchange for a higher rate, banks will ask you to tie up your cash for an agreed period of time. These bonds are for around 1-5 years depending on the option you choose. Generally, the longer you give up access, the higher the return.
HM Revenue & Customs stipulates that you must be given immediate access to your money at all times. In order to prevent savers from taking a fixed deal and then withdrawing funds before the agreed period is over, banks and building societies impose penalties for such behavior. This is usually a removal of around 180 days of interest.
Easy access accounts generally require or 30-120 days’ notice before you withdraw cash but offer a lower interest rate. Make certain you can sacrifice access for the entire term if you choose a fixed rate account, or the penalties will remove most of your interest.
2. Stocks and Shares ISA
This is another type of tax free savings account, but the funds are invested in stocks and shares. This type of savings account is a form of investment, so be aware that the value of the fund can go up and down as it is higher risk. These accounts are free from both income tax and capital gains tax also.
You can now transfer money invested either this year or in previous tax years between both cash and stocks and shares ISAs without losing the tax-free status – as long as you do not physically withdraw the money.
3. NS&I (National Savings and Investments)
NS&I is one of the most secure ways for retirees to save and invest money because it's Government - backed. Some schemes pay interest that's taxable, while others are tax-free depending on your plan.
NS&I is also launching a Pensioner Bond in January 2015, aimed at people who have already retired and are looking for a fixed-rate savings account – and it’s tipped to be market leading in terms of rates offered. For more information visit the NS&I website.
How to get the Best Rate
There are a wide range of savings rates available for you in retirement – starting from as little as 0.1% for some instant access saving accounts and rising depending on the fixed rate agreement. The type of savings accounts you can access will depend on your specific requirements, such as the amount of money you wish to save, and the type of savings account that you choose. To make the right decision, try the savings decision tree provided by moneysupermarket.com. This fantastic resource takes you through the considerations for choosing the right savings account for you.
Taking some time to work through your savings options is something that’s never too late to do. Even if you have already got a savings plan, make sure you review it to ensure you are getting the best rate possible at all times. For more information on how to prepare for retirement, read our previous article on retirement planning.