Investing

When should you retire?

When should you retire?

The dream of retirement is a lifelong aspiration, with most of us slowly building a Pension over a number of decades to ensure a comfortable and leisurely time in later life.

Typically, your retirement age will be around the State Pension age, although you can choose to take your Pension from 55. Alternatively, some people choose to work beyond the typical Pension age.

Whatever decision you make on when to retire, it is very important to give it plenty of thought. There are advantages and disadvantages to each available option…

Early Retirement (55)

There’s an obvious benefit to retiring early, it gives you more time to enjoy life! And it isn’t necessarily that difficult for retiring at 55 to be a reality. If you started investing £500 a month at the age of 25, with an assumed growth rate of 8% a year*, you’d have built a pot worth £588,000 by the age of 55.

However, just because you can, it doesn’t necessarily mean you should. Ten extra years of work could make a significant difference to your ultimate pension pot, especially as these years are likely to be well paid with opportunity to commit more to your pension. Why walk away from an even richer retirement at in your sixties?

Another consideration before taking early retirement is how long you will potentially live. If you retired at 55, but lived until 100, would your pension cover 45 years?

Also think about purpose. There’s a great sense of fulfilment from a weekly routine working towards a bigger picture. If you’ve got the energy, you could work part time and make even more money towards your retirement?

Nevertheless, if you can afford early retirement and it fits with your life, this could be a good decision for you.

Retiring at State Pension Age (65+)

For many people, retiring at the typical state retirement age will make sense. In theory, you’ll have been investing for at least three decades, which should have grown to a sufficient level to fund your retirement.

For example, if you are a man born in 1987, and invested £500 a month from the age of 25, by the time you hit your state pension age of 68 years old in 2055, your 38 years of £500 investments will be worth £1,510,000 based on an assumed growth rate of 8% a year*. That should be more than enough to retire on for the average person, and that doesn’t even factor in employer contributions towards your pension or the state pension provision.

What you should keep in mind is that the state pension age will rise, it isn’t something that can be relied on, so you may want to make your own target retirement plan. This places you in control, allowing you to see how much money you will need to invest towards retiring at your desired age.

Retiring Later (68+)

Time is money. The longer you invest for, the more opportunity you have to grow your money. Working beyond the retirement age is also a way to ensure you absolutely have enough money to enjoy a full lifestyle in retirement. If you only started to invest later in your career, you may want to work a little longer to ensure you have enough to retire on.

It may also be the case that you genuinely enjoy work. If you are fulfilled in your job and have the energy, why not keep on going to top up the pension pot? The advantage of this is that you may be in a position to contribute a greater portion of your salary to retirement.

Key Things to Consider

  1. What are your current monthly outgoings and what will you spend on in retirement? If you can work out roughly how much you’ll spend in retirement, you’ll have a pretty good idea of where your pension pot needs to be.
  2. True Potential’s own Savings Gap research shows that an income of £23,000 is needed annually in retirement to live comfortably. However, based on actual savings behaviour, people in the UK are on course to receive an income of just £6,000 per year from their retirement fund. Now’s the time to check how much you are on track to receive and take action.
  3. Consider the technical details. How will you take your Pension? Will you take tax free cash? What other factors could affect you? Tax, laws, regulations, these will all be different by the time you retire. Educate yourself on these and take advice where necessary.
  4. Remember, this is your retirement, with your own unique circumstances and individual needs. Do what is right for you.

With investing, your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time. * The calculations take into account our average annual fee of 1.16%. It doesn’t take into account the impact of inflation, which will reduce returns, and assumes you only make the contributions as set out.

Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.