Throughout your life, you will likely be saving for retirement. For many people, retirement is the dream. You work hard for a considerable period of your life for the freedom and enjoyment that retirement will bring you.
However, not all people will make it to retirement. If your retirement age is relatively old or you have an accident, it is possible that you may pass away before you retire.
And this might have you wondering what happens to your retirement money when you die.
Likewise, it is possible that you could die without spending all the money that you had saved to spend in retirement.. So, you might also be wondering what happens to your retirement money when you die.
In this guide, we’ll be taking a look at just that. So, if you want to find out what happens to your retirement money when you die, keep reading!
What Is A Pension?
First things first, let’s take a look at what a pension is. Most people are familiar with what a pension is, and that is because it is something that we are encouraged to pay into as soon as we start working.
Your pension is a pot that you will pay into throughout your working life so that you can eventually stop working, retire, and live off the money you have saved.
A pension is one of the primary forms of retirement plans. It is designed to provide you with the income you can live off once you stop actively working. Most of the time, your pension will be contributed to by multiple sources.
You may contribute a certain amount of your monthly wage into your pension, your employer will contribute a certain amount, and you may also choose to contribute even more each month.
Essentially, a pension is to contribute enough throughout your working life to sustain your lifestyle once you retire. But of course, there is always the risk that you might pass away before you get to spend all your retirement funds.
So what happens to your retirement money when you die? Without further ado, let’s take a look.
What Happens To Your Retirement Money When You Die?
A lot of the time, people will die before they spend all of their retirement money.
A lot of the time, people will save up more money for retirement than they need, so it is relatively common for people to pass away without spending all of their retirement money. So what happens to your retirement money when you die?
Well, what happens to your retirement money when you die will depend on the plan you contributed to.
However, a lot of the time, that money will not be lost when you pass away. Instead, it is treated the same as any other asset that you might have.
Most retirement plans will allow the beneficiaries of your estate to withdraw a lump sum from your pension pot.
Typically, this will not be the full amount, but it will usually be around two to four times the salary the individual paid through their pension.
Depending on the age of the person that has passed away, you may be taxed on that money. Typically, if the person who passed away is under the age of 75, the lump sum will be tax-free.
However, if the person that has passed is older than this, then it is likely that the lump sum will be taxed.
Who Gets My Pension If I Die Before Retirement?
Of course, there is no guarantee that you will reach retirement age. If there is one thing that is certain about life, it is that eventually, we will die. Unfortunately for some people, that will happen before they reach retirement age.
If this happens, you will likely want to know what happens in this situation. So who gets your pension if you die before retirement age?
In most cases, the situation will be the same as if you were to die after you retire. Most pension funds will pay out a single lump sum worth 2 to 4 times the salary of the deceased individual to the beneficiaries.
However, it will depend on the situation, as many pension providers are willing to pay out the total value of your pension if you pass away before accessing it.
But no matter how much money is paid out, the person who gets the money will remain the same, and that is the beneficiary of your estate. These people are usually your next of kin, a partner, or a child.
How Long Does It Take For A Pension To Pay Out After Death?
When you die, your pension lump sum will not be paid out instantly. Instead, this payment will be made once all the legal paperwork surrounding your death has been completed.
Only then will a lump sum payment be delivered to your beneficiaries.
Typically, it will take around five weeks for the payment to be paid into your next of kin account. But, of course, this is just an average number.
It could take less type for the lump sum to be delivered to your account, or it could take longer; it will all depend on your specific circumstances.
But, generally speaking, the beneficiaries of your estate should expect to receive the lump sum within five weeks after you have passed away. They will, of course, be kept up to date with information by your pension provider.
In short, when you die, a lump sum of your pension will be delivered to the beneficiaries of your estate.
Typically, this lump sum will equate to around 2 to 4 times your salary, and it will usually be delivered to your beneficiaries within five weeks of your death.
Thanks for reading!