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The bill signing the two-pot retirement system into law has come into effect, and while this system provides more flexibility managing retirement savings, accessing these funds prematurely can have significant drawbacks.
James Williams, Head of Marketing at short-term lender, Wonga shares some guidance on the implications of withdrawing funds from your retirement annuity and savings.
“Spending your retirement savings early may seem tempting, but it means borrowing from your future self. It is not “free money”. Accessing these savings early may severely impact your financial stability in retirement, and could leave you with inadequate funds to support yourself in later years,” says Williams.
“Early withdrawals from retirement savings can also result in substantial tax penalties. The tax on the withdrawals will be high, which will erode a significant portion of your savings. Times are tough for consumers at the moment but one can look at benefiting from compound interest over time,” he says.
“Before making any decisions, it is highly recommended to consult with a financial advisor to understand the full implications of withdrawing your retirement savings. Alternatively, consumers need carefully manage their budget to ensure they aren’t living beyond their means,” he concludes.