How do you know when you can retire?

Category: Financial planning

The retirement milestone should be one that’s celebrated. But all too often it’s one that’s affected by doubt and uncertainty too. Giving up your working life is a big decision and one that’s in your hands. However, knowing when you’re ready to retire and in the financial position to do so can be challenging.

As you approach retirement, it’s common for money to be a concern. After all, you’ll be giving up your salary and you’ll be responsible for making sure that your pension and other retirement provisions provide you with the lifestyle you want. When assessing if you can afford to retire, there are some key factors to take into consideration:

  • Life expectancy and health: It’s impossible to calculate if you’re retirement provisions will support you throughout your life, without first considering your life expectancy. Those retiring today can expect to live into their 80s, with some reaching their 100th For most people, that means your pension and assets need to provide an income for between 20 and 40 years.
  • State Pension: Your State Pension provides a foundation to build your retirement income on. Your first step should be to check whether you have a full record of National Insurance contributions and what your weekly income from this will be. You can check this here.
  • Personal Pensions: Throughout your working life you’ve probably contributed to several Personal Pensions. If you don’t already know, you should get an up to date valuation of each. From here, you’ll need to decide how you want to access your pension. There are several different options, from an Annuity that will provide a guaranteed income to those that are more flexible to suit changing lifestyle needs. This is an area we can help you with.
  • Other assets: Other assets can also be used to fund your retirement plans, from savings to property. If you intend to use these throughout your retirement, including them in your initial financial plan can give you a more accurate picture of the income you can expect.
  • Expenditure: With an understanding of your assets and projected income, you’ll need to compare this to your expected expenditure. A general rule of thumb is that you need two-thirds of your current income to maintain your lifestyle in retirement. Of course, this will vary depending on your priorities and plans.

Even with these calculations, it’s normal for there to be some doubt. This is where cashflow modelling can help. It can give you a visual representation of how your wealth and income will change over time, demonstrating the lifestyle you’re able to lead. It can also be used to show how different decisions and unplanned events may affect your retirement income too. For example:

  • How would your annual income be affected if you decided to retire three years early?
  • How would downsizing boost your disposable cash?
  • What would happen if investments underperformed?

With a grasp on how your decisions will influence finances, you’ll be in a better position when deciding when the right time to retire is.

Don’t forget the emotional side

While retirement planning often focuses on the financial side and ensuring you have enough to support yourself, you shouldn’t underestimate the psychological process of giving up work.

Your career has likely influenced you and your lifestyle for decades. It may play a big part in your social life, wellbeing and sense of pride. As a result, giving up work needs to focus on more than just the money you’ve stored away in your pension. Asking, ‘How will I spend my time in retirement?’ is just as crucial as looking at how you’ll spend your money.

For some people, the question of when they’re ready to retire comes down to the emotional side more than the finances. You may have enough saved to comfortably retire now but if you’d miss working and your aspirations still centre on your career, it’s probably not the right time for you. Your decision needs to balance both money and emotions.

If you’re still uncertain about giving up work, remember the decision doesn’t have to be final. More retirees are taking advantage of flexible working options once they’ve passed traditional retirement age, with some choosing to go back to work in some form. Whether you opt to work part-time or freelance from the comfort of your home, retirement isn’t as linear as it once was. Today’s agile workforce and technology means you can carve a path that suits you, including continuing to work if you choose to.

Working with a financial planner

As financial planners, we help you combine the two distinct yet key considerations when you’re considering retiring; can you afford to and are you ready to?

Financial planning puts your aspirations and goals at the centre of the strategy. As a result, it helps forge the retirement you want with your financial situation in mind. Our goal is to give you the confidence to give up work when you’re ready to. Many clients find they’re in a better financial position than they believed, allowing them to retire sooner, support family, or follow other dreams.

If you’re struggling with a retirement decision, please contact us. We’re here to help you get the most out of your retirement years and give you the confidence to move ahead with plans.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.



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