Early retirement may be the ultimate dream for some, but the coronavirus (COVID-19) pandemic made it the only option for many. Figures from the Office for National Statistics show that over-50s had the highest redundancy rate between December 2020 and February 2021[1].
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Retiring early can give you that change of lifestyle you\u2019ve been craving, open doors to new experiences and potentially improve your health. But there are financial consequences to stopping work in your 50s.<\/p>\n
What is the financial impact of early retirement?<\/strong> Retiring early requires some careful planning. It can put significant pressure on your funds as your new income is likely to be less than your pre-retirement earnings. You might have various sources of income for your retirement ranging from your personal and\/or workplace pension, the State Pension, investments and other savings. Reviewing your financial situation and determining how much money you need to live a comfortable life in retirement is an important first step.<\/p>\n Something to bear in mind: if you\u2019re aged over 55, your State Pension won\u2019t be paid until you reach age 67. If you stop working before then, you could be relying on income from your private pension savings for more than a decade.<\/p>\n It\u2019s also worth bearing in mind the impact of inflation. Prices have steadily increased over the past decade, for example, holidays, luxury goods and even basic necessities have become more expensive. So if you\u2019re looking at a retirement of 25 years or more, you could see the purchasing power of your pension income decrease due to rising prices.<\/p>\n How to assess your financial situation<\/strong> Here\u2019s a checklist of what you should consider:<\/strong><\/p>\n 1. How do you plan for a varied retirement?<\/strong> When you\u2019re reviewing your financial plans, it could be worth looking at those first early years of retirement as something separate. For example, including more in the budget for multiple holidays a year, or dinners out and trips to the theatre. Then take a look at how your lifestyle may modify as you slow down in later life. There may be fewer trips and holidays to take, but there could be increased care costs.<\/p>\n Taking early retirement means that you almost have to plan for two different retirements. One that caters to the immediate future, where you\u2019re likely to still be very active. And one where a slower pace of life comes into play. Each will have a different focus and therefore different demands on your money.<\/p>\n 2. How many years do you expect to be retired?<\/strong> It\u2019s worth considering family history, as well as factors such as your gender and geographical region. If you expect to live to around 85, but plan to retire at 55, you\u2019ll need to save enough to support yourself for 30 years \u2013 but don\u2019t forget, you may live a lot longer than you expect, and you\u2019re likely to want leave something for your loved ones.<\/p>\n 3. How much will your State Pension be?<\/strong> The State Pension age is under review and is gradually being pushed back so it\u2019s in line with life expectancy. Other factors, such as your gender and the year you were born, make State Pension ages vary. You can check your State Pension age here.<\/p>\n Currently, the maximum State Pension is \u00a3179.60 per week, or \u00a39,350 a year[2]. However, you\u2019ll need to have made, or be credited with, 35 years of National Insurance contributions to qualify for the full amount[3].<\/p>\n 4. How much do you have in your private pension pot?<\/strong> When you retire, you can use some or all of your pension savings to buy an annuity, which then pays you a regular retirement income for either a set period, or for life. Alternatively, you can keep your savings in your pension pot and \u2018drawdown\u2019 only what you need, as and when you need it. You must have a defined contribution pension to be able to do this (your workplace pension provider will be able to inform you on whether you do).<\/p>\n The first step, before making a decision, would be to track down all of your pension pots and ask for a pension forecast. Estimate how much you can achieve via a drawdown, an annuity, or a combination of both. And remember, the value of any investments can fall as well as rise and isn\u2019t guaranteed.<\/p>\n 5. How can you ensure your pension pot will last?<\/strong> The key thing to understand is that your retirement is completely personal, and the amount you will need will depend on your specific circumstances and expectations. If you\u2019re in any doubt about the financial impact of early retirement, you should obtain professional financial advice.<\/p>\n Source data:<\/strong> A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP 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.<\/p>\n 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. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.<\/p>\n","protected":false},"excerpt":{"rendered":" What are the financial consequences to stopping work in your 50s? Early retirement may be the ultimate dream for some, but the coronavirus (COVID-19) pandemic made it the only option for many. Figures from the Office for National Statistics show that over-50s had the highest redundancy rate between December 2020 and February 2021[1].<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3614","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/posts\/3614","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/comments?post=3614"}],"version-history":[{"count":0,"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/posts\/3614\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/media?parent=3614"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/categories?post=3614"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.attainwealthmanagement.co.uk\/wordpress\/wp-json\/wp\/v2\/tags?post=3614"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nTraditionally, people retired between the ages of 60 and 65, but there\u2019s no set age that you need to give up work. In fact, anyone with a pension pot can access it from age 55 \u2013 although this is set to rise to age 57 from 2028.<\/p>\n
\nUnderstanding your individual financial situation can make a big difference when it comes to making decisions around your retirement savings. Fully assessing your personal finances can help give you a clearer picture of whether early retirement is feasible.<\/p>\n
\nIf you\u2019re planning to retire early, think about what type of lifestyle you want to enjoy in later life. This will then help you determine what you\u2019re saving towards. You might plan to travel, embark on a journey of further education or simply spend more time with loved ones \u2013 whatever you decide to do, you\u2019re going to have demands on your retirement income.<\/p>\n
\nThere are obviously no guarantees on how long any of us will live, but when it comes to retirement planning, you\u2019ll need to make an informed guess.<\/p>\n
\nIn order to understand your income requirements in later life, you\u2019ll need to know when you can collect your State Pension and how much it\u2019s likely to be.<\/p>\n
\nAs the State Pension is not really enough to live on, the likelihood is that workplace or private pensions will make up a significant part of your retirement income.<\/p>\n
\nHaving an understanding of your retirement income and outgoings can help you to plan for the future. Perhaps you\u2019ve reviewed your finances and realised you can retire early, or you might decide to wait a few more years to help you boost your pension pot that bit more.<\/p>\n
\n[1] Living longer: older workers during the coronavirus (COVID-19) pandemic. Data source, Office for National Statistics, May 2021.
\n[2] Having more for retirement. Data source, GOV.UK, August 2021.
\n[3] The new State Pension. Data source, GOV.UK, August 2021.<\/em><\/p>\n