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:
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:
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.
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.
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