How Does Income Drawdown Work?

Income relatedIncome drawdown can provide a great way to keep you financially comfortable in later life. Here’s a look at how it works.

A Quick Look at Annuities

Income drawdown isn’t complicated, but it can be a little confusing if you’re only familiar with the annuity model of pensions. Annuities work like this: you make regular payments into your pension throughout your working life, and when you retire you use that money to purchase an annuity. An annuity is a financial product that guarantees you a fixed income until the day you die.

The problem with this model is that it may not provide for your needs. Annuity rates are dependent on market conditions, so when you go to retire, there is a chance that you may receive a poor rate. Although the payment is fixed, inflation means that it will decrease each year in real terms.

How Income Drawdown is Different

Instead of cashing in your pension on retirement day, income drawdown allows you to make regular cash withdrawals from your pension, within certain limits. You can vary the payments you receive according to your needs, and the money that you’ve invested will continue to grow.

To avail of income drawdown, you’ll need to choose a financial product such as a SIPP (Self-Invested Personal Pension) with drawdown functionality. SIPPs also offer a huge range of investment choices, giving you the opportunity to grow your fund even further.

What Kind of Payments Can I Get?

There are two types of payment available in an income drawdown pension:

  • Tax-free cash: 25% of your fund is available tax-free and can be withdrawn in instalments or taken as a one-off lump sum.
  • Income: Of the remaining 75%, you can withdraw money as and when you choose. These payments are subject to income tax, and their is a limit to how much you can withdraw each year. This limit is often referred to as the GAD Max, and you can withdraw up to your GAD Max each year. Whether you take this as a monthly payment or an annual lump sum is up to you.

How is My GAD Max Calculated

There are three factors in deciding your GAD limits. Your age and the value of the pension are both taken into consideration, with the intention that your income payments should be balanced in order to ensure a regular pension for the rest of your life. Gilt Yields, a figure issued each month by the Treasury, are also taken into account.

Your GAD Max is recalculated every three years, although in some circumstances you will be able to request a recalculation before then.

When Can I Start Taking Income Drawdown Payments?

You can begin drawing down form your pension at any time after the age of 55. You don’t need to have actually retired, although if you are still in employment then you’ll be liable to pay the same amount of income tax that you would pay on your normal salary.

Income drawdown payments can be reduced, increased (within GAD limits), stopped and restarted as you see fit.

Will I One Day Have to Purchase an Annuity?

No, you can continue to receive income payments for as long as you like. If you would like to purchase an annuity later on, you can do so with your remaining pension fund.

Are There Any Disadvantages to Income Drawdown?

Your pension payments are not guaranteed as they would be under an annuity arrangement. In order to keep receiving payments, you will need to have money in your pension and a bad investment choice may see your pension lose its value. This is why many income drawdown products are sold on an advice-only basis; it is recommend that you speak to a financial adviser before investing in such a product.

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4 Great Ways To Cut Down Your Household Spending

Cost cuttingAs you’ve probably heard, the economic climate is harsh at present. Due to the rising prices of many goods, lots of families are feeling the squeeze and putting a lid on their spending. With all this going on, the last thing you might be thinking about right now as a young family is putting money aside for your children’s future – but there’s no guarantee that things will be any easier by the time your child leaves home to go to university, or search for work. No matter how bad things may seem, it’s always a good idea to at least consider putting money into a Children’s ISA.

But with an already squeezed budget, you might be asking yourself: How can it be done? How can I trim our household outgoings any more than I already have?

Here are some ways you can free up money if you’re finding it a struggle to put funds aside:

Cut Down on Unused Luxuries

We all have them: gym memberships we never use; digital channel packages we don’t watch; subscriptions to cookery or gardening magazines we never read but which seemed like a good idea at the time; the list of extraneous luxuries goes on. So, before you make a purchase or a commitment to something which requires a monthly payment plan, stop and think: Do I really need this? Can I live without it? There’s nothing the matter with indulging yourself every now and again, but if you’re going to spend money on a hobby, make sure it’s worthwhile. Remember that this is money you could be putting to better use elsewhere. 

Be Thrifty With Your Utilities 

You might think that switching off the lights in the rooms you’re not in, and not leaving the TV on standby overnight might not make much of a difference – but it all adds up. Being clever with your energy use will not only help to reduce your carbon footprint but will also reap you rewards when you receive your next utility bill – and in turn free up more money to put into your savings.

Eat In More

We all deserve a nice meal out every now and then, especially after a tough week. But it can be easy to cave in to temptation and let this become a regular fixture. Having a meal in a restaurant can seem like such an appetising prospect that we’re often blinded to the cost of it – which doesn’t hit us until we’ve got the check after a round of desserts. If you find yourself eating out regularly, this is a cost you can easily cut out. Treat yourself to a nice meal by all means – but remember that taking out and eating at home, or even cooking a special meal yourself instead of eating out regularly will almost always be cheaper. 

Take Advantage of Deals

In your household, a holiday might be a non-negotiable fixture of your year – and understandably so. We all need to take time out from our busy lifestyles every now and then. But if you’re looking to save money, it pays to seek out deals and offers and get in there early. If you’re booking a summer holiday, try and plan it in January or even before if you can, and the chances are there’ll be a host of early bird price deals on offer.

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The Benefits of Seeking Professional Debt Assistance

Debt problem & assistanceFacing debt alone can be a challenging and frustrating experience. Unfortunately, getting into debt happens a lot quicker and easier than getting out of it, and the journey to becoming debt free can sometimes feel unsurmountable. The hardest step is admitting that you might need to seek help, so here are a few of the great benefits that you can experience from seeking professional debt assistance.

Assessing the Situation

A professional consultant will be able to take stock of your financial situation and give you an honest appraisal of your debt. The amount may be more or less than you initially thought, as people often don’t look at the sum of their debts as a whole. The next step is often to discuss your current budgeting strategies, and work out ways to help you immediately make small changes to improve your situation. Having an objective opinion on your debt is an invaluable benefit of seeking professional debt assistance.

Preventing Further Damage

Another important advantage of accessing expert help is that they can assist you to cease potentially damaging habits right away. Protecting your credit rating is a very important financial goal, and your consultant will be able to ensure that you retain the best possible ranking. In addition, they will be able to negotiate with your creditors, often forming agreements that will allow you to pay reduced amounts every month until you are back on track. This allows you to start working off your debts without worrying about defaulting on your loans.

Strategies that Work

Perhaps the greatest benefit of seeking professional debt assistance is that you will be presented with a range of strategies and solutions that are proven to work. Everyone’s financial situation is different, so a good consultant will tailor their solutions package to best suit your needs.

Peace of Mind

By accessing professional assistance, you can be confident that your debt is in the right hands. The most important thing to consider when selecting a debt solutions specialist is ensuring that they are reputable and professional. Unfortunately some companies simply aim to take advantage of your vulnerable financial situation, and can leave you with even worse debt than when you started. Choose a widely recognised and trusted name, such as Australian Debt Reduction. With great customer testimonials and acclaim from the media, you can be comfortable knowing that you are being looked after by a true professional who has your best financial interests at heart.

Stress Less, and Enjoy Life Again

Financial stress is one of the worst things to have to experience. It sits in the back of your mind every day, producing feelings of guilt, frustration and helplessness. Imagine getting your life back without having to worry about your debt every single day. By seeking professional debt assistance, you know that you have taken a big positive step towards eliminating your debts, and can start to focus on enjoying life once again.

Don’t let debt ruin your life, take control of your financial situation and get help today. By seeking professional debt assistance, you are proactively combating your issues with debt. It’s not easy, but with some expert assistance, you will be well on your way to a debt free life sooner than you might think!

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Why You Should Not Skip Renters Insurance

Renters insuranceRenting a home can have the same risks to an occupant as owning a home. And while homeowners insurance is definitely a requirement for anyone who owns a home, many people struggle with whether they really need renters’ insurance. And they most often aren’t sure whether they need it due to the cost of coverage.

Those who rent their homes often view the cost of renters insurance as another bill to add to those they already have to pay. For example, when moving into a new home, a tenant may have to pay first and last months’ rent, in addition to a security deposit and perhaps even deposits to initiate the turning on of utilities. And this is in addition to any moving costs the renter may have incurred. So the fact that there are many renters out there without insurance coverage is definitely understandable.

But what many renters don’t realize is how having insurance coverage can benefit them. In fact, the benefits of having coverage can far outweigh the costs that a renter may pay each month in order to be covered.

What Renters Insurance Protects

Many renters believe that the insurance coverage their landlord has will be enough to cover them. Not so. The coverage held by a landlord only covers the rental unit itself and the property the unit sits on. Their insurance will not cover any damage to your personal property. Without renters insurance coverage, any damage incurred to your belongings due to theft, vandalism, or something another tenant does to it will not be covered.

More Than One Option

What is listed as a definite benefit for most renters is that renters insurance is available at several different price levels. Flexible options mean that you as a tenant can choose the level of coverage that’s most affordable for you. With a policy, you can ensure that your property is protected and that you receive either full replacement cost or depreciated cash value, depending on the item or items damaged.

Don’t Be Underinsured

Having an inventory of the items you own is crucial in order not to be underinsured. Your policy’s rate will depend on the type and value of your items. Any inventory should include the price, condition and appraisals of items. Keeping all receipts for items you’ve purchased in a single and safe place will be crucial to getting any claims settled in a timely manner.

Liability protection is another type of coverage that every renter would do well to consider, which will usually cover up to 50% of the policy’s total value. As well, additional coverage can be purchased in order to protect you in the event that something happens to your home that requires you to move out for a temporary period of time. This will allow you to meet daily needs such as doing laundry and paying for temporary accommodations.

Limited Coverage

One disadvantage to many renters’ insurance policies is the amount of coverage you receive. It is true that the onus will be on the landlord where damage occurs to the rental dwelling itself. However, this coverage may not extend to the interior of your dwelling. And so checking your policy is crucial. If your landlord’s insurance only covers the outside of their property, then getting renters insurance will be important.

Another limit on renters insurance is water damage. Questioning your water damage coverage is definitely important. If water damage was caused from below the property where you are renting, then any damage will likely not be covered. But if the damage occurred from above, such as because of a leaky roof, then it’s likely to be covered.

When deciding on whether or not you need renters insurance, it’s important to remember that even a small number of possessions can quickly add up in terms of dollar value. And although you will have to pay a deductible before being reimbursed by an insurance company, having coverage will help you to replace your lost or damaged items more quickly and easily than if you had to do it all on your own.

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Buying Versus Leasing A Car- Which Is Best?

Leasing A CarCars mean something to all of us. If you’ve been lucky enough to get your hands on a luxury vehicle or sports car, the feeling you may use to describe them would most likely be along the lines of pure joy and euphoria. However if you’re driving a clunker from 80’s you probably swear at your car more than the participants of a typical episode of the Jerry Springer Show.

If you’re in the market for a new car, some of your time has probably been spent pondering over whether to buy or lease. Here’s some more information on buying versus leasing, including the advantages and disadvantages of each:

Buying:

Some may argue that the best option may be to buy new and look after the vehicle well until the last payment is made. At this point instead of selling, you keep the vehicle. The idea is that because the car is well looked after, maintenance costs are reduced throughout and after the vehicle is paid off.

The benefits of buying:

  • Even though the car is registered in your name, the bank technically owns the car until you pay the last instalment. However at the end of the period you will have an extra asset under your belt.
  • When you buy a car, insurance companies view you as lower risk and the monthly payments you’ll need to make will be lower.

Disadvantages of buying:

  • Monthly payments are typically higher when buying the vehicle.
  • When buying, the dealership will require a deposit or down-payment, which means that the initial cost when buying is considerably higher.
  • If you buy, payments are amortized over a 48 – 72 month period and take the entire cost of the vehicle into account.
  • Cars generally lose some of their value in the first couple of years to depreciation. However if the payment plan is taken over too long of a term then there’s a chance that you could end up owing more than the car is worth.

As with other loans payments are divided between capital and interest.

In the first couple of years paying your car back, more of the payment goes toward interest than capital.

*Leasing:

With this option you’re essentially renting the car for a fixed period (usually 36 – 48 months).

The amount you lease a vehicle for is determined by the difference between the purchase price and residual value, which is the pre-determined value of the vehicle at the end of the lease.

Benefits of leasing:

  • When leasing, the initial costs that you incur when acquiring and maintaining the car are less.
  • Monthly payments are much lower and leases require less of a deposit than purchased vehicles.
  • When you buy a car you pay for depreciation based on entire value of the vehicle. However when leasing you only pay for the use and depreciation of the car for a set period.

Disadvantages of leasing:

  • Most leases also come with mileage restrictions which means you’re only allowed to do per year (usually around 12 000 miles a year). If you exceed this, you pay more at the end of the lease.
  • Insurance providers may also charge higher premiums for leased vehicles.

Pre-owned vehicles are another option worth looking into. For example vehicles that have been returned after expired leases can be bought for substantially less than their brand new counterparts.

This article was written by Daniel Stevens who is a fan of the great outdoors and when he’s not writing up a storm 😉 – that’s where you’ll find him.

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