Ready or Not: Evaluating your Retirement Readiness 

The time was when almost everyone was forced to retire at 65, when their state pension came in. Many employers took this as the cue to provide the traditional handshake and gold watch.

We are living longer, more active lives than any prior generation, and mandatory retirement at 65 is seen as age discrimination and is no longer legal.

Currently a person can retire at the age of 55 if they want to and if they can afford to. But are you ready?

Do you want to stop work? 

A life of leisure might be appealing, but many retirees discover they miss the professional challenges and the social life of the working world.

Unless you have hobbies and a social circle that is independent of your work, retirement can be less rewarding than you hoped.

Of course, if you do have a full calendar, family and friends to see and a whole range of hobbies you want to take up, you may be ready for leaving the working world behind you.

But can you afford to?

The costs of a life of leisure

Being personally ready to retire is one thing. Being financially ready is quite another. You need to understand the costs of living in retirement.

Having the mortgage paid off and no more costly commuting might mean you need less each month – but you will still want to eat, pay the bills and run a car. If you expect your retirement lifestyle to include meals out and foreign holidays, your income needs may be much higher than the kind of income many retirees discover they have.  And if you’re not careful, you’ll find you’re taking on a hobby that costs a lot more than you expected. Just ask anyone who bought a boat after they retired.

Don’t just assume you’re going to spend a lot less money after you retire. Take the time to put together a real-world budget and include more than just the bare necessities. Budget for travel, gifts for the grandchildren, and all of the little things that inevitably get left out of financial plans.

A common rule is to budget for at least 70% of your pre-retirement income during retirement.  But to make things clear, the Pension and Lifetime Savings Association (PLSA) has defined three levels of retirement living: minimum, moderate and comfortable.

A comfortable retirement may include meals out, regular beauty treatments, subscriptions to streaming services and around two foreign holidays a year. Basically, a standard of living where you could be spontaneous with your money and afford some luxuries.

According to the Pension and Lifetime Savings Association (PLSA), to achieve this comfortable retirement, you would need a retirement income of £43,100 a year if you were single. As a couple it would be £59,000 a year (this would be higher if you live in London).

So, can you afford to retire?

You can probably count on a state pension if you have reached state pension age, which will contribute around £11,000 to your annual income. But if you want to retire early, or for any other reason will not be getting the state payout, you will need to rely on your pension pot.

If you are planning on using drawdown, you might want to follow the 4% rule where you withdraw 4% of your retirement savings each year, in the hope that the remainder will grow to replenish what you have taken out.  This means to reach the £43,100 per year level, you would need a pension pot of more than £1M or be prepared to watch your pension cash reserve steadily fall as you dip into your capital to provide your income.

The risk in that case is outliving your retirement savings. 

What can you do?

It’s certainly not all doom and gloom if you want to retire early, but you may have to be realistic about your plans – and make a few adjustments.

This might be working a little longer to make sure you’re financially ready. It could mean working part time for a few years, too, which that would have some social benefits, as well as bring in extra money.

You may also want to find ways to make your pension savings work harder for you, either while you are growing them, or once you have started to dip into them.

At Continuum we can help, by helping you make the most of your money, and by working with you to prepare a detailed forecast of the kind of income and lifestyle you may be able to look forward to.

We can even prepare a detailed financial forecast, to show exactly when you may be financially ready for the retirement you want. 

Call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Accessing pension benefits early is not suitable for everyone. You should seek advice to understand your options at retirement.

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.

A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken.

Pension savings are at risk of being eroded by inflation.

Home – PLSA – Retirement Living Standards

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