With an increasing number of people feeling almost ‘forced’ into early retirement due to the current economic climate, many are questioning “how long does a pension last?”
The ideal answer will of course be: “as long as you do” but with an average life expectancy in the UK of 81.26 years, retiring early could result in your pension savings running out ahead of time, leaving you struggling financially.
Budgeting effectively for your retirement isn’t easy as there are several ‘unknown components’ for example:
How long you will live
The impact inflation will have on future prices
What your returns will be on any savings and investments you have
A good place to start is to take stock of your current financial position and try to predict how things may differ once you retire.
What are your regular outgoings? Are they all essential? Will they change once you retire?
Do You Have Any Regular Debt Repayments? Are these likely to be repaid prior to retirement?
What Income Will You Have? Take into account any state pension, private pension(s) and savings and investment income.
2) Risks of Early Retirement
The main risk of retiring early is simply running out of money.
It’s the double bubble effect because each year of early retirement will be a lost year in terms of contributions towards your pension pot AND an extra year dipping into it to pay for your day to day living expenses.
You also need to remember that you won’t receive your State Pension until at the earliest your mid sixties or later depending your current age.
Finally in this section, because you will potentially have to make your savings pot last longer, the annual income you can take from your pension will need to be smaller.
3) Planning For Early Retirement
If you have set your sights on retiring early, then the sooner you start planning and saving for it the better.
Do you know the current and predicted value of your pension pot(s)
When can you access your State Pension and how much is it likely to be?
Could you have any ‘lost’ pensions from previous employers?
What sort of lifestyle do want during your retirement?
Calculate what that lifestyle would cost on an annual basis.
Use a pension calculator to work out what size your combined pension income will need to be to fund your ideal lifestyle.
A staggering 35% of the UK adults have NO Pension Plans and 43% don’t even know how much they will need for their ideal retirement lifestyle!
Download this free “Retirement Income Guide” to help you understand your options and make the right decisions NOW so that will be able to enjoy your retirement without worrying about money.
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4) Alternatives To Early Retirement
There are some alternatives to retiring early, which could be worth exploring.
If you need a short term cash injection to see you through a difficult financial situtation and buy some time to find another full or part time job you can consider:
Taking up to 25% of your pension savings as a tax free lump sum (age restrictions apply)
Accessing a defined benefit pension (if you have one)
Cashing in a ‘small pot’ – a pension which is under £10,000 in value.
Buying certain types of annuity
Approaching things this way could mean you are able to continue to regularly contribute towards your pension fund, and maybe top it back up too thus reducing the long term impact when it comes to funding your future full retirement.
What ever your situation, I highly recommend you contact a specialist Pensions Advisor to discuss your options and ensure that anything you decide to do is handled in the most tax efficient way, with as little impact as possible on your long term retirement income.
If you would like to book a free 30 minute initial chat to review your current situation, please click the button below, or contact Tony Thomas on 07585 592494 or email@example.com