With an increasing number of people feeling almost ‘forced’ into early retirement due to the current economic climate, many are asking “How long will my pension last?”

The ideal answer should of course be: “as long as you do” but with an average life expectancy in the UK of 81.92 years in 2024 (a 0.18% increase from 2023), retiring early could result in your pension savings running out ahead of time, leaving you struggling financially.

In this article we explore the following topics:

1. Can You Afford To Retire Early?

2. Risks Of Early Retirement

3. Planning

4. What is a Good Monthly Retirement Income?

5. Alternatives To Early Retirement

1) Can You Afford To Retire Early?

Future planning and 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 income will be from any savings and investments you have

A good place to start is to take stock of your current financial position, along with your lifestyle choices and try to predict how things may differ once you retire.

  • What are your regular outgoings?
    Are they all essential?  Will you change your spending habits once you retire?

  • Do You Have Any Regular Debt Repayments?
    Are these likely to be paid off prior to retirement?

  • What Guaranteed Income Will You Have?
    Take into account any basic state pension, employer, defined benefit pensions and personal pensions along with with any savings and investment returns.

2) Risks of Early Retirement

Should you decide to stop working and take your pension early, the main risk 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 basic State Pension until at the earliest your mid sixties or later depending your current age.

how long will your money last

Remember, because you will potentially have to make your retirement savings last longer, the annual income you can take from your pension pot will need to be smaller.

3) Retirement Planning

If you have set your sights on retiring early, then the sooner you start planning and building a secure income 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 a ‘lost’ workplace pension plan from any of your 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.

Retirement Income Guide
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4) What is a Good Monthly Retirement Income?

What you consider to be a good or comfortable retirement income will largely depend on your personal circumstances e.g. where you live in the UK, your chosen lifestyle and whether you are a single person, or a couple.

The Pensions and Lifetime Savings Association have devised a 3 level system called the “Retirement Living Standards” which provide a benchmark level of ANNUAL income required to fund different standards of living in retirement. The following table shows the findings as at January 2023:

SingleCouple
MINIMUM
Covers all your needs, with some left over for fun
£12,800

London: £14,300

£19,900

London: £22,400

MODERATE
More financial security and flexibility
£23,300

London: £28,300

£34,000

London: £41,400

COMFORTABLE
More financial freedom and some luxuries
£37,300

London: £40,900

£54,500

London: £56,500

These standards are designed to build awareness and help you picture what your future life in retirement could look like, and how much money you are likely to need.

5) 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:

– Making a withdraw of up to 25% of your pension savings as a tax free lump sum (age restrictions apply)

– Accessing your defined benefit pension scheme (if you have one)

– Cashing in a ‘small pot’ – a pension pot 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.

In Summary

Whatever your situation, I highly recommend you speak with a specialist independent financial adviser to discuss your different options. It is important to ensure anything you decide to do is handled in the most tax efficient way, without negatively impacting your financial stability and long term retirement income.

If you would like to book a free 30 minute initial chat to review your pension situation, please click the button below, or contact Tony Thomas on 07585 592494 or tony@ttwealth.co.uk