When do you plan to retire? Whether you want to wait until State Pension age, retire early or continue to work later in life, it’s good to have a plan in mind. However, even the best-laid plans can change, sometimes unexpectedly and due to factors outside of your control.

In fact, research from Just Group indicates around 3.6 million people aged over 65 have retired earlier than expected. Without a financial plan in place that considers potential life events, it could leave you in a vulnerable position; just 26% of those that retired early did so because they had enough pension or savings.

Around six in ten workers who retired between the ages of 50 and 65 said they stopped working sooner than anticipated and felt as though they were forced into the decision. Among the top reasons for early, unexpected retirement was:

• Illness (25%)
• Redundancy (21%)
• Caring for a family member (10%)

All of the above can be difficult circumstances to deal with alone. But if you’re also worrying about how you’ll afford to live, both immediately and in the future, it can place even more pressure on you. If you hoped to continue working until your late 60s, how would having to fund your lifestyle for a further ten years affect your pension savings? Could you survive for five years without being able to access your pensions? These are the questions that financial planning can help you answer.

While you may not want to think about leaving your job due to poor health, creating a financial plan can give you peace of mind. The earlier we plan for retirement and the obstacles life throws at us, the better.

Preparing for the unexpected

Of course, it’s not as easy as simply saying you need to prepare for the possibility of an earlier retirement. If you don’t know what’s going to happen, how do you know what steps you should be taking?

It’s impossible to know what’s around the corner, but there are things you can do to improve your financial security.

• Create an emergency buffer: While an emergency fund won’t provide you with support in the long term, it can give you some breathing room. If you’re off sick or made redundant, for example, it can take care of the immediate financial commitments. It means you have more time to carefully think through your options should an unexpected early retirement be on the cards.
• Remain engaged with your pension: A pension is often something we pay into while rarely thinking about its value. Remaining engaged with your pension throughout your working life means you’ll have a far better idea of how retirement will look for you. It’s also a good habit that can help you identify where contributions may need to be increased to deliver the lifestyle you want. This, in turn, will have a positive influence on your ability to overcome the unexpected too.
• Consider protection: In certain circumstances, protection products can provide you with a long-term income. If you believe you’d struggle financially if you were to become too ill to work, critical illness cover or income protection could provide you with peace of mind, for instance. It’s important that any protection product you do take out matches other provisions made and that it’s right for your situation.
• Build a financial plan: A financial plan should help you set out where you want to go and how to get there. To be effective, it should also consider potential unexpected events and the possible actions that can be taken to mitigate any negative impact. Keeping your financial plan up to date is important here too, ensuring it reflects your personal life and the wider economy.

Cashflow planning and unexpected events

If you’re worried about your ability to finance extra years in retirement if necessary, cashflow planning can help put your mind at rest. Taking your current financial situation and making assumptions, such as investment returns and interest rates, based on your plans, we can show you how your wealth will change over time.

The basics of cashflow planning are excellent for demonstrating how things may pan out should everything stay on track. However, it also allows us to input life events, including early retirement, to show you the outcome. It’s a process that can highlight where there may be flaws in your current strategy and give you confidence in a financial plan. It can also help us indicate where adjustments, such as withdrawing a lower income once you reach State Pension age or taking advantage of tax-efficient allowances, can help your money stretch further.

Retirement planning might seem like a step that’s not needed for years yet. However, it’s one that can help you overcome financial barriers and allow you to focus on what’s important. If you’d like to understand how the unexpected could impact your financial security, please contact us.