February 11, 2023
Retiring early is a dream for many people. If you’ve been able to plan, save into a pension over a long period and taken financial advice to help you plan your financial future, you may well have everything in place ready to enjoy your financial freedom.
However, what if you’re facing forced retirement for some reason or other – before you’ve had time to fully prepare?
Research [1] has found that 34% of pre-retirees [2] (people aged 55+ who are still in some form of work) have already started phasing into retirement – that’s around 3.3 million [3] employees. This suggests that retirement is no longer a hard line, but is becoming more flexible. This could be down to changing perceptions of later life, or as a result of changes in the job market.
What ever the reason, it’s important that you see retirement as something that you manage – rather than something that just happens. By taking control of your retirement, whatever age you plan to do it, and whatever it looks like for you, you’ll be far more likely to achieve the kind of financial freedom that will allow you to live the life you dream of.
Recent research has shown that almost half (48%) of all employees aged 55+ anticipate cutting down the amount they work first, rather than completely stopping, with one in seven (14%) planning to wind down over the next year.
For some people (37%) , this is a choice based on wanting to keep their job for now, but cut down their hours to reduce stress. But the majority of people (44%) are looking at phased retirement because they can’t afford to retire fully.
On average, over half (54%) of all people who are taking a phased approach to retirement are working 15+ hours less every month, consequently earning £9,150 less every year. As a result, many expect to have to adjust their lifestyle (38%), and some even anticipate they could struggle with meeting the cost of household essentials (17%).
It’s generally estimated that to maintain your current lifestyle when you retire, you’ll need around 60 – 70% of your present monthly income. This assumes that you no longer have a mortgage to pay, don’t have to spend money on your commute any more, and that your children are now able to support themselves financially.
If you’re younger and busy concentrating on your career, buying a home or raising a family, retirement might seem a lifetime away.
But you can (and should) still take action now to secure your retirement. The simplest option is to make sure you join your company pension and save as much as you can, from as young an age as possible. Starting to make pension contributions early in your career can make a huge difference to the size of your retirement nest egg.
Around 10% of people who were already moving towards slowing down at work, and reducing their hours, have said that the recent dramatic rise in cost of living has forced them to revisit their plans, and increase their work commitments again.
Two-fifths (40%) of people who had anticipated gradually moving into retirement in the next five years now worry that living costs might mean this plan is not possible.
If you’re concerned about not being able to manage on a lower salary while you phase into retirement, the good news is that there are some financial options which you could explore. For those wanting to keep their options open while also looking for ways to supplement their income, flexible products such as fixed term annuities can play an important role. They provide a guaranteed income for a set time – in some cases as little as three years, helping to bridge any potential gap in salary.
At Talis IFA, our focus is on making your money work for you, rather than the other way around. Once we get to know you, and to understand your future plans, we can review your financial position now, and make recommendations based on a thorough understanding of what you want to achieve for you and your family. We call it our ‘life first, money second’ approach.
In the end, the key thing is to make sure you are making well-informed decisions about what works best for you. We’d be delighted to help with that, so please get in touch.
[1] Research was carried out online by Opinium Research amongst 4,000 UK adults between 14th – 20th October. The results are weighted to nationally representative criteria.
[2] Pre-retirees’ refers to those aged 55+ who are still in some form of work
[3] On a nat rep survey of 4,000, 248 55+ year-old workers have already taken a phased approach to retirement (248/4,000 *52.890m = 3.3m)
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