Draw Your Occupational Pension Over 5 or 10 Years, or for Life?
If you choose a lifetime payout, your occupational pension will be paid monthly for as long as you live. However, you can also choose to receive your pension over a fixed period, such as 5, 10, or 15 years. So, which option is best?
Should You Take Your Occupational Pension over 5, 10 or 15 Years?
“Most of us do not know how long we will live, so it is impossible to say which option is financially best,” says Dan Adolphson Björck, pension economist at minPension. “There is nothing unusual about taking part of your occupational pension over a shorter period. However, taking out your entire occupational pension over just a few years may significantly reduce your income later in retirement, when you may have to rely solely on your state pension and any private savings.”
Consider Your Own Situation and Make an Informed Decision
If you choose lifetime payments, you may end up receiving either more or less money overall, depending on how long you live. So what should you base your decision on?
“Everyone needs to look at their individual circumstances and carefully consider their decision,” says Dan Adolphson Björck. “Many people feel they need more money during the first years of retirement and want their income to remain as close as possible to their working-life income. At the same time, most retirees remain active and healthy well beyond their first 5 or 10 years of retirement. In that case, having a pension that continues to pay a somewhat lower amount for the rest of your life may be a better option. Otherwise, there is a risk that your finances become strained for many years after the temporary payments have ended.”
“It is also important to remember that if you continue working while drawing your occupational pension over a short period, part of your income may be lost to higher taxes.”
Be Honest With Yourself
Is there anything else you should consider?
“I think you should be honest with yourself and look at your own behaviour. Are you someone who can save money, or do you tend to spend what is available in your bank account?
What if You Want to Invest the Money Yourself?
“That is certainly an option, but you should also ask yourself what kind of person you are,” says Dan Adolphson Björck. “Are you interested in investments, and are you willing to put in the time and effort that successful investing often requires? As an individual investor, it can be difficult to achieve the same returns that pension providers may be able to generate through professional management.”
Many People Delay Pension Decisions
Many people postpone thinking about retirement for a long time. Why is that?
“I think many people find pensions complicated. They put off making decisions for as long as possible, and that can lead to rushed choices.”
“He also believes that many of us either cannot, or do not want to, imagine our lives many years into the future. Nevertheless, it is worth trying to start planning early and comparing different alternatives through minPension.
Review what your income will look like when you first retire, how it may change after a few years, and what it might be over the remainder of your life.”
Best Piece of Advice: Get the Full Picture
So what is your best advice for future retirees?
“Give yourself time to think through your situation and put all the pieces together. Many people have occupational pensions with several providers, and you need a complete overview to make a well-informed decision.”
“You can get that overview by logging in to minPension. If you are an AMF customer, you can also log in to My Pages and create a pension forecast there.”