Retirement: When, and How, Should You Retire?
For those who haven’t given much thought to their retirement, the first thing that comes to mind is State Pension – that is, the government pension payments for which you are made eligible through National Insurance contributions during your working life. The State Pension age for people retiring now is 66, but the age threshold is set to rise to 68.
Crucially, though, State Pension age is not necessarily the age at which you retire. When can you retire, and how should you do so?
When Can You Retire?
Retirement has always been, to some extent, in your hands as a member of the working population. Retirement is as simple as resigning from a position or deciding not to search for new work in the event of redundancy, for a majority of workers.
Up until relatively recently, there was a ‘default retirement age’ that enabled employers to retire employees that reached the age of 65. In 2011, though, this was abolished – putting the decision to retire firmly in the hands of the workers and mitigating the effects of age discrimination on the wider working population.
As such, the simple answer to the question ‘when can I retire?’ is ‘whenever you like’. However, retirement is a major life decision, and one that needs to be shored up with the right planning.
Planning for Your Retirement
As an example, you could find yourself drawn to the idea of retirement in your late forties, having saved up a little nest age. However, this nest egg would have to sustain you for at least 20 years, until you became eligible for State Pension – which, by itself, may not be enough for you to maintain the same quality of life.
This illustrates well the sheer importance of financial planning to any budding retirement plans. In order to permanently leave the workforce, you need to ensure you have the right funds and investments to carry you into later life – in accordance with your own goals and needs.
You might be anticipating expensive medicinal, or accessibility needs in later life, necessitating a ringfenced sum of money that can be attributed to your care and comfort. You may want to enter retirement with your mortgage fully paid off, in order to reduce your outgoings. You will also want to ensure your savings are ample enough to afford your ideal retirement lifestyle – including holidays.
Retirement and Inflation
But there is a key factor to consider in any retirement planning – inflation. Inflation describes the rising cost of goods and services in a given economy, and the consequent ‘de-valuing’ of a currency as a result. Simply put, a pound today is worth less than a pound at the start of the decade. The rate of inflation has been a cause for serious concern in recent months, as it threatens to breach 10% before the end of 2022.
Inflation rates are particularly dangerous for retirement plans based solely on cash savings. Money sitting in a savings account will lose a significant amount of spending power over time, leaving a retiree with, in essence, much less to live on. The solution is to diversify savings with investments in assets and stocks – again, a key indicator of the importance of financial planning.