The dream of retirement is what keeps some of us going through the daily grind of the nine to five. Fantasies of a round-the-world cruise, time spent enjoying hobbies, endless socialising with friends and spending time seeing the world are high on many people’s wishlists.
The opportunities that retirement brings are limitless, but all these things cost money. And with pension ages rising and final salary schemes looking to be consigned to the history books within our lifetime, it’s no wonder that nearly half of people over 55 have no idea when they will be able to afford to retire.*
If you're approaching retirement age, but still unsure of how to afford life after work then there's no need to panic! There are several things you can do and think about to help you decide when you can afford to retire. Here are the questions you need to ask yourself to start planning your retirement finances.
1. When do you want to retire?
Retirement is no longer the definitive date it once was. In the past people tended to work until a retirement age set by their employer or the State. But now many Britons blur the line by continuing to work part time.
Another way to enjoy more leisure time if you're not quite ready to retire is to continue working full time, but take regular sabbaticals. Of course, this really depends on what your career is - in some jobs it may be hard to negotiate with your boss!
If you do carry on working past the state retirement age, but decrease your hours, you may pay less tax, have no National Insurance payments to make and will still have an income. This may enable you to delay drawing your state pension, which means you'll get a bigger amount when you do come to retire.
On the flip side if you don't like your job or want a change of pace, you may want to stop working early. You may be able to start claiming your workplace or private pension from age 55, but your state pension won't be available until you reach state pension age.
Taking early retirement can be an attractive option but beware, if you are considering taking your pension early you should understand how doing so may reduce your retirement income - especially in the later years of your retirement.
2. How much income will you need?
It’s hard to know off the top of your head much income you’ll need. Life changes when you retire – and so does how you spend your money.
When you first retire - when you are healthy and active and want to fulfil your dreams - you may spend a lot more money on leisure activities. But if you’re lucky enough to have paid off your mortgage then it's unlikely you'll need as much money as you did when you were working.
Your income needs will typically reduce over time, as inevitably your health and activity level will decrease naturally. But you still want to be able to enjoy life and pay your monthly bills without having to worry.
You can cut expenditure by registering for a free bus pass, the winter fuel allowance, a senior railcard, and a free TV license (once you reach the age of 75). We recommend working out a budget before you retire, and planning accordingly.
3. What income will you have?
When you retire you’re likely to lose your main source of income. So you need to make sure you’ll have enough income coming in from other sources.
You can get a state pension forecast on the government's website, but if you're entitled to the full state pension then you'll receive £159.55 per week- a total annual income of £8,296.60.** The actual amount you receive will depend on your national insurance record.
Workplace or personal pension - Six months before you retire, you should contact your current and previous pension providers to find out what your final pension will be. You should think about how you want to take your pension income.
When you give up the nine to five grind depends on your circumstances – your health, the bills you have to pay, what savings and income you have and the retirement lifestyle you want. Drawing up a retirement budget based on how much income you'll receive and what you're likely to be spending your money on will help you identify any shortfalls in your finances and prepare to fill these holes.
* Study of 2,000 UK adults by Momentum UK