The word ‘retirement’ conjures up a different image for every one of us, and so it should.
Some of us never want to retire, whilst others can’t wait to finish work and start the next part of their lives.
In days gone by, we worked until our State Pension started, retired and lived for a relatively short time until we died. Things are changing, although not as fast as some might have expected.
New figures from the Department of Work & Pensions show that in 1950 the average retirement age for men was 67 and 63 for women.
Fast forward nearly 70 years and the average retirement age for men has dropped to 65; for women, it is stuck at 63.
A rise in the average retirement age
Despite the lure of retirement, many experts predict that several factors, including:
- Increases to the State Pension Age
- A cut in real term wage growth
- The closure of many Defined Benefit and Final Salary Pensions
- Increased life expectancy
will lead to the average retirement age rising in years to come.
Indeed, today’s retirees are already worse off compared to those who have already finished work. Research from Fidelity has also shown that the average income of someone retiring today has fallen by 46% compared to just a decade ago.
The secret to retiring early
If working into your late 60s or 70s sounds like your idea of hell, and you would like to retire earlier, how can you achieve that objective?
Plan ahead: Life expectancy is rising. It’s not uncommon, especially if you finish work ‘early’, to be retired for 20, 30, or even 40 years. Remember too, the earlier you retire, the longer your life expectancy.
That means you’ve got to save enough money during your working life to live off for many years. To do that takes careful planning and taking advantage of every possible way to boost your retirement provision. For example, joining workplace pensions to pick up contributions from your employer, using pensions which qualify for tax-relief and regularly reviewing your savings and investments.
Retiring early will take more than just randomly paying money in to a pension or an ISA (Individual Savings Account). Those who achieve this objective will have a plan, they will know exactly how much money they need to build up and how much they need to put away each month.
Pensions Freedom: The new rules, introduced in April 2015, give anyone over the age of 55 far more flexibility in how they take money from their pension.
In many ways, Pensions Freedom is the real secret to retiring early.
Prior to the rule change, the amount we could take out of our pensions each year was capped. That restriction meant many people couldn’t afford to retire until their State Pension kicked in.
However, the new rules removed that cap, allowing us unlimited access to our pension from 55. That change means some people are now taking larger amounts from their pension, so they can retire early, only to drop the withdrawals to a more sustainable level when their State Pension starts.
This approach isn’t without risks; the income you take from your pension needs to be carefully managed to ensure it doesn’t run out before you, or your spouse / partner, dies.
That warning leads us on nicely to our final point…
Take advice: Using technology available to them, an Independent Financial Adviser can construct a financial forecast to show whether you can afford to retire. The forecast will consider factors such as:
- The level of income you need now, and in the future
- Any lump sums of capital you need
- Your existing pensions, savings and investments
- Your State Pension
The results of the forecast may well be surprising, perhaps even showing that you can afford to retire far earlier than you previously thought possible.
Remember too that research shows people who take advice from an Independent Financial Adviser are better off in retirement:
- The Value of Financial Advice Report July 2017, produced by The International Longevity Centre found that people who work with a financial adviser boost their assets by an average of £41,099
- The same report found that taking advice boosted the income of 65-79-year-olds by more than £1,100 per year
- Furthermore, Unbiased.co.uk has found that people who take advice save, on average, £98 more per month creating an additional £3,654 per year in retirement
We’d love to hear from you
Creating your ideal retirement is possible, it just takes careful planning. And that’s where we come in.
We are experienced Independent Financial Advisers and can use our knowledge and skills to produce a retirement plan to meet your objectives.
That starts with you taking the first step though, of calling us on 0800 612 8099 or completing our online enquiry form which you can find by clicking here.