Time to retire? Review your finances now to find out if you can

Do you wish you could give up work now? Or perhaps you want to calculate if you can afford to retire in a few years’ time? Reviewing your finances can help assess if you’re on track to retire when you want to.

People often dream about handing in their notice for the last time but worry they don’t have the financial security to do so. However, you might be surprised. When all your potential income is taken into account, now could be the right time to retire.

Deciding when to retire is a big decision. You need to make sure you have enough to support yourself for the rest of your life. As life expectancy increases, that could mean needing to fund 20, 30 or even 40 years with the retirement savings you’ve built up.

Reviewing your retirement income

If you want to understand whether retirement now is achievable or a pipe dream, the place to start is your income. You’re likely to have income coming from multiple sources during retirement. This can make it difficult to calculate exactly what you can expect to receive on a monthly or annual basis.

Among the most common sources of income are:

  • State Pension: The State Pension is currently £164.35 per week and will often form the foundation of your pension income. To be eligible for the full State Pension, you must have 35 years of National Insurance contributions. The State Pension age is slowly increasing and will depend on when you were born. So, if you choose to retire before your State Pension age, you need to calculate your income without it initially. You can also choose to defer claiming the State Pension and receive more later in life.
  • Workplace Pension: During you’re working years, you’ve probably been a member of several pension schemes. Getting up-to-date statements for each is important to fully assess what level of income you can expect from them. Understanding the type of pension is crucial too; whether they’re Defined Benefit schemes or Defined Contribution schemes.
  • Private Pension: In addition to your Workplace Pensions, you may also have a Private Pension. Again, you should review what you have saved in this, as well as when you can access it.
  • Savings: Once in retirement, many people reduce the amount they deposit into savings accounts. Instead, using this money to supplement their income. However, it’s still a good idea to keep some of your savings separate as an emergency fund.
  • Investments: As you approach retirement, it may be beneficial to review your investments. Depending on how much risk you want to take, you may want to move away from a growth strategy to one that focuses on delivering an income. A financial planner can help you create an investment plan with your goals in mind. Contact us today to review your investments with retirement in mind.
  • Property: Many retirees are tempted to downsize. With children flying the nest, it can be an opportunity to release some of the equity in your home. A lump sum can give you the means to enjoy your early retirement years or add to your income over the long term. If you don’t want to sell your property, there are other options. Equity release, for example, can provide you with a lump sum too.
  • Employment: The days of working one day and retiring completely the next are gone. Retirees today have far more options. If you’re not ready to give up work, transitioning into retirement can help. Choosing to work part-time or on a consultancy basis, for example, could mean you can give up a traditional, full-time role sooner.

Assessing your income needs

Assessing how much income you need in retirement can be challenging. You’ve probably heard a few rules of thumb, such as needing two-thirds of your current salary to maintain your lifestyle.

However, the truth is it’s an individual figure.

How much income you need will depend on what your retirement aspirations are. So, taking some time to think about what your ideal retirement looks like is important. A retiree planning to see the world, for example, will likely need a higher income than one who’s focused on spending time with grandchildren.

With this in mind, you should start to build up an idea of how much income you’d need each
year. Of course, the amount may vary from year-to-year depending on your plans.

If you find there’s a gap between the income you need and your current pension, it doesn’t mean that retiring now is out of reach. Cutting back some of your plans could make it more achievable if retiring is a priority, while continuing to work on a self-employed basis could cover the shortfall.

If you want to discuss whether you could retire now, we can help. As financial planners, we can help you make sense of your potential retirement income with your plans in mind. Contact us today to take the next step towards retirement.