There are numerous reasons why taking your final salary pension before the NRA has its pros and cons. One of the biggest cons is that if you choose to retire early from your final pension plan before the standard retirement age, which is normally 60 or 65, you will have to pay an exit penalty. However, is it a smart or even a terrible idea to take your final salary pension earlier?
Dominic James Murray, CEO and Senior Independent Financial Advisor at Cameron James, explains the two sides of the coin in taking your DB pensions early.
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Video Timestamp:
00:00 – Intro
00:23 – DB Early Retirement, Is It a Good Idea?
00:33 – Before NRA
01:33 – The Reasons Why People Take Their DB Pension Early
02:14 – What Happens if You Are Seriously Ill?
03:08 – Outro
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Dominic James Murray, CEO and Senior Independent Financial Advisor of Cameron James. Helping expats across 23 countries for over 10 years (including the USA and non-UK residents).
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Should I Take My Final Salary Pension Early? Pros & Cons Of Final Salary Pension Early Retirement
As retirement approaches, many individuals with a final salary pension are faced with the decision of whether to take their pension early or wait until the designated retirement age. The option to take a final salary pension early can be appealing for some, as it allows for greater financial flexibility and an earlier transition into retirement. However, there are also potential drawbacks to consider when making this decision. In this article, we will explore the pros and cons of taking a final salary pension early to help individuals make an informed decision.
Pros of Taking Final Salary Pension Early
1. Financial Freedom: Taking a final salary pension early provides individuals with the financial freedom to pursue their retirement goals, such as traveling, starting a business, or spending more time with family.
2. Health Considerations: For some individuals, health concerns or physical limitations may make early retirement a more attractive option. This allows them to prioritize their well-being and quality of life.
3. Potential for Higher Payments: In some cases, taking a final salary pension early may result in higher monthly payments compared to waiting until the designated retirement age. This can be advantageous for individuals who need a larger income in the early years of retirement.
4. Reduced Workload: Early retirement allows individuals to escape the demands of a full-time job and enjoy a more relaxed lifestyle. This can lead to improved mental and physical well-being.
Cons of Taking Final Salary Pension Early
1. Reduced Pension Payments: One of the main drawbacks of taking a final salary pension early is the potential for reduced pension payments. The earlier individuals begin to receive their pension, the lower the monthly payments are likely to be.
2. Longer Retirement Period: Taking a pension early means that individuals will need to make their pension last for a longer period of time. This requires careful financial planning to ensure that their retirement savings will be sufficient to cover expenses throughout their retirement years.
3. Loss of Future Benefits: By taking a pension early, individuals may miss out on potential future benefits, such as cost-of-living adjustments or higher pension payments offered to those who wait until the designated retirement age.
4. Limited Retirement Savings: Individuals who take their pension early may have fewer opportunities to save for retirement, especially if they are not able to continue working and contributing to their retirement accounts.
In conclusion, the decision to take a final salary pension early is a personal one that should be carefully considered based on individual circumstances and financial goals. While early retirement offers the potential for financial freedom and improved well-being, it also comes with the risk of reduced pension payments and a longer retirement period to fund. Before making a decision, individuals should carefully weigh the pros and cons and consult with a financial advisor to ensure that they are making the best choice for their future.
Its not a penalty – its an actuarial adjustment . It simply depends on how long you think you'll live. Makes good sense for a lot of people who have additional pensions or investment strategies.
Actuarial reduction is usually done on a cost neutral basis so that neither the scheme or member is is unduly penalised for taking the benefit early.
Also not in anybodys interest on gambling still being here at 65, but in poor health or even dead so not able to enjoy the pension. Take the pension, it's in your interest and not the pension providers to take it, and enjoy it while you can.
If I leave my job @ 55 then claim my final salary pension at official retirement age. Will my final salary lump sum still be available and will it have risen with inflation/pay rises.