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Early Retirement

Early Retirement

It is now typicl to Retire before you are 65. In 2011 nearly 80% of company pension scheme members retired early. Employers normally prefer to offer early retirement as an alternative to redundancy. This will probably be a lifestyle choice to be carefully considered with their partner. Do your research and seek professional advice.

Early retirement is probably more difficult than in the recent past as Pension funds have lost their tax benefits and now grow more slowly than in the past.  This is partly

  • as a result of all the early retirement pensions they have had to pay!
  • Annuities (which provide the retirement income for most pensioners) are paying lower rates.
  • Interest rates are low so investments do not provide much extra income.

You will receive less income for a longer retirement period – perhaps 30 years or more!

How much money are you going to need in retirement?

You will have to see how your money is currently being spent and then adjust the figures for when you retire. This will produce a minimum income requirement – known as a  cash flow plan.

Here are some of the pitfalls that people fall in to:

  • Too many people guess.
  • Too many people underestimate.

If you don’t plan properly you could regret any mistakes for a long time!

Try the following methods:

  • Use a checklist (perhaps from a book)
  • A software package such as Microsoft Money or Intuit Quicken
  • Internet based calculators

Whatever the method there are four main types of expenditure to consider:

  • Ongoing: The essentials that will still be necessary in retirement eg food, drink, clothes
  • Reducing: Spending you will no longer have when you’re retired eg work-related expenses, any children leave home
  • Increasing: The higher retirement costs eg fuel bills (spending more time at home), health insurance, leisure activities and home help or care in later life
  • One-off: Foreseeable major expenditure eg paying off the mortgage, major extensions, buying your dream car

Do you know what your income will be?

Do you know how much income can be provided by your assets and investments? When considering this make sure you include all your assets including your property. Divide them into those you can draw upon on early retirement and those to be used for other purposes.

What you should consider:

  • How long you will you stay in your existing property. For how long? Will moving to a smaller property release money as well as reduce living expenses?
  • Could you spend your savings eg live on building society savings for five years and then take a pension at age 60?
  • Have you considered including your partner’s income?
  • Alternative employment income?

Unfortunately, age discrimination is regrettably very much a reality of modern life. You could find that changing your job late in life might be very difficult. The majority of jobs open are going to be part time and low income.  So be realistic.

For further information visit: http://www.redundancyhelp.co.uk

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