When will you be in a position to retire? As the State Pension age rises, early retirement may be something you’re thinking about. It’s a step that requires careful planning to ensure you’re financially secure.

Research suggests 61% of Brits worry about the prospect of a longer working life. The Aviva study indicates 20 million people have concerns about when they’ll be able to retire. The findings follow statistics showing a record number of workers over the age of 50. Some 10.6 million over 50s are now employed, a 32% rise over the last decade.

The State Pension age: How is it affecting retirement age?

The State Pension represents the largest single source of income in retirement (43%) for the average pensioner. As a result, changes to the State Pension age can affect retirement plans.

Assuming you’re eligible for the full State Pension it will pay £168.60 in 2019/20. An annual income of £8,767.20 is unlikely to be enough to support the lifestyle you want. But it does provide a base income that you can rely on. So, increases to the State Pension age may mean delaying retirement.

Last year, the State Pension equalised for men and women at 65. Men and women’s State Pension will now rise together, reaching:

• 66 by October 2020
• 67 by 2028
• 68 by 2046

The State Pension remains under review and the above increases may change. If you hope to retire before State Pension age, you’ll need other sources of income.

The Centre for Social Justice proposed increasing the State Pension age to 75 by 2035. The Department of Work and Pensions ruled this out. However, it highlights why planning your finances is important. This is particularly important if early retirement is a goal.

You can view your State Pension forecast here.

Calculating if you can afford early retirement

If early retirement is a dream, you need to calculate if you’ll be able to afford it.

The first step is to consider how much income you’ll need each year. This figure will vary between retirees and their expected lifestyle. So, it’s important to think about the expenses you’ll have, both essential and discretionary. Often retirees find they spend less money in retirement than when they’re working.

Next, you need to think about how long you’ll be retired for. This will give you an idea of how long your savings will need to last for. Clearly, early retirement means you’re going to have to fund more years. But life expectancy is also crucial. No one wants to think about dying, but it can help make you more secure. Many people underestimate how long they’ll live for. This could leave them vulnerable in later life.

With this information, you can start to look at your pensions:

• Do you have any Defined Benefit pensions?
• What guaranteed income will a Defined Benefit pension offer?
• What are the current values of Defined Contribution pensions?
• How much will Defined Contribution pensions be worth at retirement?
• Do you want to take a tax-free lump sum from your pension?
• Would you prefer a guaranteed or flexible income?

Whilst the focus is often on pensions, you should assess other assets too. Property, savings and investments may boost your income, making early retirement possible. If you’re unsure what your pension and assets mean for early retirement, please contact us.

What are your options if early retirement isn’t possible?

If you’ve taken a look at your current provisions and early retirement doesn’t seem possible, don’t despair. There are often things you can do to improve your prospects.

• Explore options with other assets. We mentioned using other assets above, but have you fully explored all options? Looking at how savings or property could fund retirement can be challenging. After all, it may be breaking lifelong saving habits. We can help you assess how assets can support retirement aspirations. It’s important to weigh up the pros and cons before proceeding.
• Adjust your retirement outgoings. Whether this is an option will depend on your priorities. Would you reduce outgoings to enjoy early retirement? If the answer is yes, go back to your budget. Reviewing your expenditure again can help identify areas where you can cut back. Be realistic here about where you can reduce spending and how it’d affect your lifestyle.
• Consider phased retirement. If giving up work isn’t an option, phased retirement may be. More retirees are choosing to reduce their work responsibilities. Phased retirement may mean working part-time, switching to a less demanding role or using flexible working arrangements. It can be a useful way to balance work and retirement lifestyle whilst still earning an income.

If you’d like to discuss your retirement plans, please get in touch.

Please note: A pension is a long-term investment. The fund 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.