Retiring is the beginning of an exciting new phase of life. When you finish working, your time is completely your own to do whatever you like with. You might decide to travel the world, spend time with family, or explore new interests.
However, it’s important to plan carefully for retirement to ensure you can achieve everything you want to. Deciding when you will retire is a big part of that.
You can typically access your private pensions from age 55 and your State Pension from age 66 (rising to 67 from 2026).
Yet, your ideal retirement date isn’t only decided by when you can access your pensions. There are numerous emotional and financial considerations to weigh up when making your choice.
Here are five key questions to ask to help you decide when to retire.
1. What do I want to achieve in retirement?
Knowing what you want to achieve in retirement could help you decide when you should finish working.
For example, you might want to travel the world and explore adventurous destinations. Bear in mind that taking long-haul flights or hiking through a remote jungle will be difficult when you are older and may be more vulnerable to health issues.
As such, you might consider retiring early if you have more physically demanding goals. The same may be true if you have young grandchildren and you want to spend as much time as possible with them during their early years.
That said, it is typically easier to build your retirement savings while you are working. So, it’s important to consider whether retiring early will make it harder to afford certain goals, such as travel or purchasing a second home.
2. Am I emotionally ready to retire?
Retirement is a huge transition and you shouldn’t underestimate the emotional component. Most of us spend a significant portion of our lives working and for many of us, it’s a big part of who we are.
You might find that you value your family life or your interests outside of work more than your job, so you are happy to retire as soon as possible.
Conversely, if you are dedicated to your work and you enjoy being in that environment, retirement can be emotionally challenging. This may be especially true if you retire before you feel that you’ve achieved everything you’d hoped for in your professional life.
Some people also find it difficult to live without the structure of a job and this can affect their mental wellbeing.
With all this in mind, it’s worth considering whether you are emotionally ready to retire. You may even opt for a partial retirement if you enjoy the social aspects of work or the regular structure that a job offers.
However, partial retirement does create some unique financial planning challenges so it may be useful to seek professional guidance first.
3. Am I in good health?
Your health may influence your decision about when to retire, particularly if you’ve experienced serious health problems.
If your health is already suffering or you have recently recovered from a serious illness, you may not want to wait too long until you retire. Instead, you may decide that you want to make the most of your retirement soon in case your health deteriorates further.
Even if you are in good health and can live an active lifestyle, it’s important to remember that may not last forever. If you have goals that rely on your health, you might not want to delay retirement for too long in case you miss your opportunity.
4. How much will my ideal retirement lifestyle cost?
Once you’ve considered the emotional aspects, you need to think about your finances. Calculating how much your ideal retirement lifestyle will cost may be a useful first step.
Consider costs including:
- Mortgage or rent
- Utility bills
- Car running or transport costs
- Social spending (dining out, activities with friends and family)
- Holidays
- Financially supporting loved ones
- Care costs.
Creating a retirement budget that includes these costs should give you a sense of how much income you need to fund your ideal lifestyle. This figure will likely guide your decision about when you can afford to retire.
5. What assets do I have to fund my retirement?
Once you’ve created a budget, you can look at the assets you have to fund your retirement.
This includes your:
- Private pensions
- State Pension
- Investments
- Cash savings
- Property.
You may also need to consider how you will use these assets to generate an income. For example, will you transfer your private pensions to drawdown, use them to purchase an annuity, or a combination of both? Do you have ISA savings that you can use to supplement the income from your pensions?
It’s important to consider the most tax-efficient way to generate an income in retirement. For instance, you may use excess cash and then wealth in your ISAs and other investments to fund your lifestyle before drawing from your pensions.
This is because you usually pay tax on pension income that exceeds your Personal Allowance of £12,570 in 2023/24. Conversely, you don’t normally pay tax on growth and income from wealth in an ISA.
Your non-ISA investments may attract CGT or Dividend Tax, but the rate is typically lower than Income Tax.
Considering these tax implications and drawing from your retirement savings in the most tax-efficient order could help you generate a more sustainable income throughout retirement.
After considering your current position, you might find that you can already generate your desired level of income. As a result, you have more freedom to decide when to retire.
Conversely, if you don’t yet have the assets to fund your dream lifestyle, you may need to delay your retirement.
We can use cashflow planning to help you determine how much you need in savings to achieve your ideal retirement lifestyle. Additionally, we can model how changing contributions to your pensions and other savings will help you build wealth.
You can then use this information to determine the most suitable time to retire for you.
Get in touch
If you can’t decide when the best time to retire is, we can help you assess your options.
Please contact us at hello@ardentuk.com or call 01904 655 330. As an award-winning financial advice company that was a 2022 VouchedFor Top Rated firm, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
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.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
