Consider tax when setting your income goal
Updated 18 July 2018
When you're setting a goal for your retirement income, you should consider increasing your goal to account for any tax you may need to pay.
Depending on your income position at retirement, you may have to pay tax on the income you take from your pension (withdrawals taken from ISAs are not taxable).
There are a number of considerations here in determining what tax you may need to pay:
- Do you have other retirement income as well as the money you expect to get from your pension?
- Will you take a tax-free cash lump sum (typically up to 25% of the pension pot value)?
- Will you take a steady income or vary this year by year (this could take you in and out of different tax bands)
For example - If the information you provide to Lifestyle planner suggest you need an income of £30k in retirement, adding current tax rates to this would mean that you might need and income of £34,537.50 E.g. £11,850 tax free, £22,687.50 at basic rate (20% - £4,537.50) = £34,537.50 target income.
This information is based on our understanding of current, taxation law and HMRC practice, which may change. Current tax rates and bands are available below: