We recently asked 1,001 people aged 55-65 what they were planning to do with money drawn from their pensions. The top answers were:

• Invest to generate an income
• Travel and holidays
• Keeping cash aside for emergencies
• Property repairs and improvements
• Debt repayment
• Mortgage repayment
• Helping family members

Whatever your reason for accessing your pension, there are five golden rules to making the most of your cash. You can usually take money from your pension from age 55 (57 from 2028).

1. Don’t overestimate the cost of an emergency

As a rough rule of thumb, it’s worth holding around 10-25% of your assets as cash in retirement, to cover short-term needs and emergencies.

With some pensions, including our self-invested personal pension, you can hold cash ready for you to withdraw or invest at a later date.

It’s important not to be tempted into having too much held in cash, because over time its value could be eroded by inflation. The key is getting the right balance between having a cash safety net, and leaving enough invested to continue to grow throughout retirement.

2. Don't forget tax

When you withdraw money from a pension, the first 25% is usually tax free, and the rest is taxed as income. It is added to any other taxable income received the same tax year so will normally be taxed at 20%, 40% or 45% depending on your circumstances. For this reason you should take care when deciding how much to withdraw, and whether you should spread your withdrawals over a number of tax years. This could mean you pay less tax and keep more of your money for yourself. Tax rules are subject to change and benefits depend on circumstances.

3. Pay off expensive debt

Some 31% of 55-65-year-olds in our recent survey told us they have debt in addition to their mortgage. If you are carrying expensive debt into retirement, it could make sense to pay it off and avoid additional interest - especially if you can do it tax efficiently.

Think long-term, you need to make sure you will have enough income later in your retirement too.

4. Needs first, wants second

Many people would like to use their pensions to help family members financially – whether that’s helping them to pay off debts or get a foot on the property ladder. However, although this is admirable, you need to take time to consider your own needs first, or you could end up falling back on those same family members should your cash run out as a result.

If leaving money to your loved ones is a high priority, it’s worth remembering the tax shelter a pension offers and how this is lost upon withdrawal. For example, when you die, your loved ones can usually receive your pension money free of inheritance tax, whereas money inherited from an ISA is usually taxed. For this reason, it may make more sense to draw from other sources of income first, leaving your pension until last.

5. Don’t take too much too quickly

Rising prices and longer life expectancies mean you might need more money to maintain your lifestyle.

Roughly, a man who is 65 today can expect to live to age 87, and a 65-year-old woman can expect to live to 89, yet when asked to estimate their own lifespan, most people say they don’t think they’ll make it to 85. Retirees need an optimistic estimate of longevity if they’re to avoid spending their money too fast. Our longevity calculator can give you an indication of your life expectancy based on national averages.

Forgetting to factor in inflation is another mistake often made. Over the course of a typical retirement, inflation has been known to double prices, so you also need to consider how your income will change in the future.

Your Options At Retirement How to maximise the income you receive from your pension fund. Claim your free guide

What help is available?

What you do with your pension is an important decision. We strongly recommend you understand your options and check your chosen option is right for your circumstances. Take advice or guidance if you are unsure.

The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.

This article, including our guides and calculators, is not personal advice. We offer a range of information and support to help you plan your own finances. We also have an award-winning Advisory Service that can help you achieve your goals. Our flexible approach means you only pay for the advice you need.

If you have any questions about the retirement options available, please call our experienced Helpdesk on 0117 980 9940 (Monday to Thursday 8am - 7pm, Friday 8am - 6pm and Saturday 9:30am - 12:30pm). You will speak to a real person who will answer your questions in plain English.