Now that you’ve reached a certain age, you may find yourself asking: ‘When can I retire?’
It is a personal choice when you actually retire and it depends on many factors.
If you choose to retire early, will you have enough money to live on?
And do you have enough activities planned to keep you busy?
Let’s explore: when can I retire?
Here’s a summary of what we’ll cover:
- There is no fixed age for retirement anymore, it is really up to you and when you feel ready.
- Your employer legally can’t make you retire (with some exceptions, such as police, fire service and armed forces). They might need to change your role depending on the needs of the business and your capabilities.
- Your pensions and financial life might be the most important thing to consider.
- Remember to plan how you will spend your time in retirement. Stopping work can seem like a dream, but without structure, retirement may become dull.
What is retirement?
Retiring from a career or job traditionally happened around the age of 65.
Most people work during their adult life and look forward to spending some leisure time from 65 onward.
Since 2011, however, there has been no mandatory retirement age in the UK.
This was changed to reflect the fact that people are, happily, living longer and have more years of employable life.
What this means is that your employer – in most cases – can’t make you retire at any particular age.
Is it always my choice?
The police, fire service and armed forces have slightly different rules here.
They can legally enforce retirement or job change once you reach a certain age or level of capability.
Some private companies can also legally have a compulsory retirement time, such as air traffic control.
This is to do with the physical and mental capabilities needed to do the job safely and effectively.
Construction may also have upper age limits for some roles.
In the main, though, an employer legally may not enforce retirement.
They can still offer enticements such as redundancy or early retirement packages.
New state pension age
The former state pension claim age was 65 for men, and 60 for women.
However, things have changed in recent years.
It is now 66 for both men and for women.
There are plans for this age to go up again over the next few years.
It will increase up to the age of 68 for both men and women. This increase will happen in stages over the next 20 years or so.
You do not get your state pension automatically; apply to claim it from the Department of Work and Pensions.
You can put off taking your state pension if you don’t want or need it at the age you become eligible.
There is a small increase in payments of 5.8% for every year you don’t claim it.
Unlike a private pension, you cannot take any of your state pension in a lump sum, only in monthly instalments.
You may claim your state pension and remain at work if you choose.
Be aware that this might change how much tax you pay, as state pension is still taxable income.
There’s more here on financial benefits for elderly people.
What is early retirement?
Early retirement is considered as stopping work to live on your pension at any time before the state pension age.
Private pensions can usually be drawn upon from the age of 55.
Check with your pension provider to see what their rules are.
You may be able to take a lump sum out of your pension initially, then draw on it monthly like the state pension.
Some withdrawals of lump sums are tax-free, but usually only the first 25%.
It is important to know the implications of however you choose to take your private pension.
You may need to pay additional tax if it takes you over your tax-free earnings threshold.
You can draw on your private pension and not retire.
Or you may choose to take a lump sum from your private pension to invest, or pay off your mortgage.
Also, you may continue at work in order to continue accruing state pension contributions, or simply because you enjoy it.
Some people have private pensions, savings and investments enough to stop working as early as 55.
Others prefer to work and keep contributing to their pension pots for longer.
Always make a good plan and consider the possibility of care home costs in the future too.
What do I need to consider before I retire?
Principally, your finances need to be sound before you consider retiring.
You may choose to discuss this with an independent financial advisor or your bank.
The traditional way to prepare for your retirement is through private pensions in addition to your state pension, if eligible.
However, people are finding different ways to fund their retirement now.
Property as a pension fund
Some people buy property and sell it or rent it out to provide for their retirement.
You may have invested in an investment portfolio yourself rather than a pension pot.
Business owners may choose not to retire fully, and instead continue to draw a salary while working reduced hours.
If you have done any of the above, the principle is the same. In order to stop working and earning regular money, you need an income to live on.
The bigger your nest egg or monthly income, the more comfortable your retirement is likely to be.
You should also think about where you live:
- If you own your own house, is the mortgage paid off?
- Do you need to consider equity release to fund your retirement?
- Is it sensible to sell the house and downsize?
Renters might consider how much their rent will go up in the coming years, and if their financial planning has accounted for it.
However, money isn’t the only thing to think about.
What else should you consider?
It is important to think about the hobbies and pastimes you would like to spend your time on.
- Do you want to become a volunteer for a charity?
- Have you got your eye on an adult education course?
- Would you like to go back to university to take higher education classes?
- Do you prefer to spend your days fishing or baking?
Most people have a variety of activities they would like to spend their retirement on, so it is important you plan how you can do as many as possible and the funds you will need.
Can I afford to retire?
This is a very personal question and is up to the individual to decide.
What is important to consider is how much you think you will need to live on when you are no longer working.
Take into account factors such as you will no longer be paying to commute into work.
If you need special clothing for work, you will no longer have to purchase this.
Homeowners will usually have aimed to pay off their mortgage prior to retirement. This will also bring down the cost of living.
However, you might be surprised to find out that most retired people don’t spend as much as they think they will.
How much do people live off in retirement?
A survey in 2021 found that couples in comfortable retirement spend around £26,000 a year on living expenses.
This includes some short-haul holidays and dining out, as well as paying for hobbies.
Single people living a similar lifestyle can expect to pay an average of £19,000 per year.
To plan for an ‘essentials only’ retirement, plan an income of £13,000 for a single person, £18000 for a couple.
The state pension – if you are eligible for the maximum amount – will give you around £9,350 per year.
This leaves a shortfall of around £10,000 a year for a single person to have a comfortable lifestyle.
A couple needs to find around £7,500 to fund a comfortable lifestyle.
If you prefer a more luxurious way of living, you will need to have a little more cash on hand. £31,000 for a single person and £46,000 for a couple.
Luxurious might mean some long haul holidays, more trips to Europe, and more dining out and leisure activities.
What will I do when I retire?
It pays to consider this question as far in advance of retirement as you can.
Considering your desired lifestyle can help you plan financially for how you want to live.
Hobbies and pastimes are often sidelined while we are at work.
The working day can be long, and commuting can be draining. This doesn’t always leave a lot of time or energy for hobbies.
Retirement can change all of that, but it is helpful to have a plan of how you will spend your time.
Make a list of all you want to achieve from your retirement.
This could be anything from making a perfect victoria sponge to mentoring troubled youths.
Once you have your list prepared, you can allocate a budget to the items on it.
Prioritise the ones you want to do first. You might choose to have tennis lessons as soon as you retire, for example.
You might still bake that Victoria sponge at 90, but not feel so much like playing tennis.
Be flexible – this list will grow and change as you go through your retirement, discovering new things you enjoy.
I don’t want to retire...
You are not alone if you are thinking this!
The number of people in the UK working into their 70’s has doubled in the last decade.
This is because of a few different factors:
- We are in good health for longer these days.
- We can be confident we will live longer than previous generations.
- Many people want to keep working and earning to accommodate their longer lives.
- Advances in technology mean we are less worn out by hard manual jobs as generations past.
- At 66, plenty of people feel too young and vital to retire.
Some people may choose to stay at work for longer for purely financial reasons.
Perhaps they want to put more into their pension pot, or defer their state pension to gain an increase.
Maybe they haven’t paid their mortgage off yet, or are waiting for investments to mature.
Whatever the reasons, deciding when to retire is a very personal choice that only you can make.
It is always helpful to get advice from an independent financial advisor regarding your pensions and investments if you have any.
So when can I retire?
Well really, it’s up to you!
Juts make a good financial plan, as early as you can, and you will certainly have more options when that day finally comes.
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