When you make a big purchase, such as a car or a home, you probably think very carefully about how affordable it is. You explore the options that appeal to you the most, balance the costs against your earnings, and then choose the one that best fits your circumstances.
Knowing when to retire is a lot like this. Once you give up work, you’ll lose the income you’ve used to fund your lifestyle throughout your career. Meanwhile, you’ll start drawing on your pension and other savings, which are finite, unless you have a guaranteed pension income.
Ultimately, this decision will come down to how you want to spend your later years and what you can afford.
The trouble here is that many people assume they are unable to retire without having run the numbers. That might lead them to continue working when they don’t actually need to.
Alternatively, others might be correct in their assessment that they can’t currently afford to stop working. However, they might not realise that there are steps they could take now to boost their savings, putting them back on track to achieving the retirement they want.
Find out why it’s essential to think about whether you could afford to retire sooner rather than later, and learn how a professional financial planner can help you organise your wealth so you can reach your goals in later life.
You could be in a better position to retire than you think
To understand why planning early is so important, let’s consider a couple of examples.
Firstly, imagine that you’re 40 and want to retire at 55, but you don’t think you can afford to. So, you continue working until 65, giving you enough time to generate the savings you think you need.
Then, at 65, you start drawing on your savings and ticking off those retirement goals on your bucket list.
In doing so, you realise that you have more than you thought, and you could have actually retired comfortably at 55. Instead, you continued working and contributing to your pension and savings, even though you didn’t strictly need to.
This might not seem like a bad outcome. After all, it simply means that you have a bit more in your savings than you thought you would have.
But think about that another way – that’s 10 years you could have spent travelling, spending time with family and friends, or pursuing a new hobby.
Had you taken the time to examine the numbers, you could have enjoyed even more time doing the things that really matter to you.
Knowing that you don’t have enough could be the first step in creating your retirement plan
Now, let’s think about the other side of the coin. Imagine that you turn 65 and find out that you were absolutely correct: retiring at 55 would have seen you deplete your savings midway through your retirement.
This may seem like an effective decision, too – you’ve avoided a really difficult financial situation.
However, this ignores the difference you could have made in the 15 years between 40 and 55 by planning ahead.
If you had started thinking about later life and your ideal retirement age earlier, you might have been able to make changes to your habits that would have allowed you to achieve that goal.
For example, you could have prioritised your pension in that period. And because you’d likely reach your peak earnings potential during that decade and a half, those contributions may have had a significant impact.
Alternatively, you might have adopted more risk in your investment strategy, knowing that you’d be more comfortable with the greater potential for volatility in exchange for the possibility of higher returns.
It might even have been as simple as reorganising your budget and cutting back on certain expenses, with the express goal of diverting those savings toward your retirement income.
All this to say, by planning ahead, you could have achieved your ideal retirement age.
Work with a financial planner to give you peace of mind that you’ll be financially secure in retirement
Whether you’re right or wrong in thinking that you can’t afford to retire, both scenarios highlight the importance of planning early.
By carefully considering this in advance of your ideal retirement date, you’ll achieve one of two outcomes:
- You’ll have confidence that you’ll be financially secure and able to reach your targets in retirement.
- You’ll know how far away you are from what you need, and have the opportunity to do something about it.
In either case, you might benefit from advice from a financial planner. They’ll help you calculate the cost of your desired retirement and look at your current financial situation to ensure everything adds up.
Crucially, they’ll do this with your goals in mind. Before thinking about your wealth, a planner will want to know about you, your life, and your hopes for the future.
That could be anything from a round-the-world trip with your spouse or partner to simply spending more time with your children and grandchildren.
Using your goals as a guide, they’ll then make recommendations for how to organise your wealth to ensure you’re able to achieve what matters most to you.
They’ll also be able to forecast how your financial situation could change in the future. Using cashflow modelling software, a planner can input your expected income and expenditure, and account for how it could change throughout the course of your retirement.
They can model different scenarios, too, such as retiring at different ages, if investment markets perform poorly, or what would happen if inflation rose sharply.
By working with a planner and completing this process, you could gain the certainty of knowing that you’re on track for the retirement you want.
Meanwhile, if the numbers don’t quite add up, you’ll have the knowledge and experience of a professional to help you make effective choices with your wealth and reach your objectives.
Get in touch
Email financialplanning@apogeewealth.co.uk or call on 01565 757811 to learn more about how we can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
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.
Workplace pensions are regulated by The Pensions Regulator.
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