Retirement Before the State Pension age?

When do you want to retire? Are you dreaming of giving up work before you start collecting your State Pension? The State Pension age is rising. Moreover, there are suggestions that the Government needs to start increasing the age much sooner. Therefore, this has led to workers thinking of retiring earlier than the State Pension age.

The sooner you start to plan for your retirement, the more likely you will be able to make your dreams a reality.

Changes To The State Pension Age

The State Pension age is gradually increasing for men and women. Further rises are planned and the State Pension age remains under review. By 2028, the State Pension age will be 67 and it’s likely to rise beyond this.

It is important to understand when you will receive the State Pension. Also to keep track of how legislative change will have an impact. You can check your State Pension here.

Whilst there are already steps in place to increase the State Pension, you may have seen the news suggesting that it needs to increase at a much faster pace.

According to the Centre for Social Justice, they believe the State Pension age should reach 70 by 2028 and 75 by 2035. The organisation argues that getting more people in their 50s/60s to continue to work could boost the economy by £182 billion. Also, it notes the cost of providing the State Pension. This was accounted for 42% of all welfare spending in 2028. Over the last 30 years, the cost of the State Pension has increased by over £75 billion, reaching £92 billion.

If you had hoped to retire sooner, the State Pension age increasing could derail plans. The Centre for Social Justice paper is simply a suggestion. However, you may not want to work up to the point the State Pension age is currently set.

Calculating Your Retirement

If you would like to retire before the State Pension age, this will require careful financial planning. Our advisers are here to help you. Pension Freedoms mean that you are likely to have more options now compared to what you would have had in the past.

Most people are now able to access their pensions from the age of 55. This is before they can expect to start receiving an income from the State Pension. However, simply being able to access pensions earlier in life does not mean you can afford to retire sooner.

Your pension provisions will likely need to provide an income for the rest of your life. Making withdrawals sooner could leave you in a financially vulnerable position in your latter years.

You will need to take three essential steps to begin understanding if it is possible to retire on your current provisions. In addition, how to make up a potential shortfall.

Step #1 – Set Out Your Goals

Calculating if you can afford to retire before the State Pension age means you first need to set out what you hope to achieve.

There are two key questions here:

1. When do you want to retire?
2. What will your lifestyle and spending look like in retirement?

Understanding how much income you will need annually and your life expectancy are crucial to assessing how your savings stack up.

Step #2 – Understand Your Current Pension Savings

Once you have assessed your finances, in relation to your retirement age, you will now need to look at the value of your pension(s).

Remember to assess all the pensions you hold and then factor in likely investment returns between now and your intended retirement date.

With these figures, you will be able to see the level of income your pension will provide if you were to retire at different points.

Step #3 – Assess How Other Assets May Be Used

Pensions are often the key to creating an income in retirement. However, they are not the only option.

You may have other assets that can be used to fund retirement. Some examples are savings, investments or property. So how could these be used to supplement pensions?

Knowing you have other assets to fall back on can give you the confidence needed to move ahead with your plans. You also need to ask whether you would be comfortable using these other assets for retirement income. Perhaps you had hoped to leave property as an inheritance or savings to pay for potential care costs.

Identifying A Shortfall

As you assess your pension savings, you may find that you are in a better position than you thought. However, you could also find a gap between your ambitions and savings.

If this is the case, identifying the shortfall is the first step to creating a financial plan that combines your aspirations and financial situation.

This is where financial planning can help you understand what steps may help. For example:

• Could you work longer than initially planned and still retire before receiving the State Pension?
• Would a phased approach to retirement appeal to you?
• Could you reduce your monthly outgoings or cut back on big-ticket spending?