We all have a picture in our mind about what retirement looks like, but we’re here to shatter a few illusions. Retirement doesn’t have to be about slowing down and taking it easy; it’s an exciting new phase of life that brings with it lots of opportunities and possibilities. But, to have the retirement that you want, you should start planning to retire a lot earlier than you think.
The pension freedoms introduced in 2015 allow more flexibility at retirement, and as a result, retirement looks different for everyone. For some, retirement is working part-time and drawing from their pension savings to afford regular holidays, for others it’s stopping work, moving out to the countryside and picking up old hobbies.
Ultimately, retirement can be anything you want it to be, but to make the most of it you need to start with an idea of what you’ll need, and how you’re going to save for it.
Reasons to start planning for retirement early
1. You may be forced to retire early
Sometimes things don’t go as you planned and unanticipated circumstances may lead you to retire early. You might face redundancy, or you or a family member could fall ill. Since these events cannot be predicted or planned for, what you need to do is make sure that you have enough in your retirement savings to fall back on. We hope you never have to experience this, but as financial advisers, it’s our job to create a plan that can withstand such unexpected events.
2. The earlier you start, the more you’ll have
Of course, the earlier you start saving, the bigger your pot of retirement savings and the more opportunities you’ll have. It’s also just a great habit to have. If you carry on putting money aside, you’re less likely to spend it on things you don’t need, and when you do decide to treat yourself, it feels like a worthy reward.
3. It gives you more options and opportunities
The Pension Freedoms have allowed people to bring their retirement forward a lot earlier than was previously possible. The changes mean you can access a bit of your pension pot, rather than having to take it all in one go, giving you the flexibility to mould your retirement into the shape you want and potentially bring it forward.
At the age of 55, you can access your pension savings and spend it however you like. So, now that we’re able to do that, the ball is in our court to decide how proactive we are about saving for it. Even if early retirement is not a priority for you now, it might be in the future.
Planning to retire checklist
If you’re planning to retire sometime soon, here’s a helpful checklist of things you should start to consider:
Establish how much you’ve saved so far
Do you know where all of your pensions are and what they add up to? If not, it’s time to start getting organised.
- Start by finding out how much you expect to receive from your defined benefit pension. This information should be on your most recent statement. It’ll show you how much you might get when you retire and how much pension you’ve built up so far.
- Tot-up the value of your defined contribution pension schemes as well.
- Calculate the total amount of savings and investments you have that you can use to increase your retirement income.
- Use the pension calculator here to get an estimate of what you might have to retire on.
Check your state pension
If you haven’t got one already, then you should request a State Pension statement. You can do this here. It will give you an idea of how much State Pension you’re entitled to, based on your National Insurance contributions so far.
Track your spending before you retire
Calculate how much you are spending now and roughly how much you need in retirement.
It is more than likely that you will have less income available to you in retirement, but the question is; is it enough? Can you make any cuts or adjustments, if so?
Last year the Pensions and Lifetime Savings Association (PLSA) published the UK Retirement Living Standards to help people visualise their future retirement and understand what it might cost. The standards are split into three different income levels: minimum, moderate, and comfortable. They suggest a single person will roughly need about £10k a year to achieve the minimum living standard, £20k a year for moderate, and £30k a year for comfortable.
Get professional advice
Now that you have even more options when it comes to retirement, it’s crucial to have a financial plan in place to support your long-term financial security. The earlier you start to plan; the better the outcome will be.
Also, if you’re faced with making any difficult financial decisions concerning your retirement, we recommend that you consult a professional financial adviser.