In the last couple of decades, retirement has changed. Even since I’ve been working as a financial planner, both the rules governing pensions and the approach retirees are taking has fundamentally changed.

Gone are the days of working in a job for life until age 65, receiving a carriage clock from the boss, and living out your life with a gold-plated final salary pension. Now, you’re more likely to transition into retirement with income coming from a wide range of sources including multiple pensions, employment income, and your investments.

Recently, you may have seen the news that the government are intending to raise the minimum age at which you can draw your pension, from 55 to 57. While the associated headlines may have focused on how you might have to work for two years more before you could retire, I see it differently.

My job is to help you to ensure you can retire at a time of your choosing.

Plans to raise the minimum retirement age from 2028

In their recent consultation paper, the government says:

“While the government believes in the principle that individuals should have freedom and choice in how they use their money, it is also necessary to balance this with ensuring that people use their retirement savings for their intended purpose: income and security in later life […] This is why in 2006 the government introduced a normal minimum pension age.”

This age rose from 50 to 55 in 2010. Now, the government plan to raise this age further – to 57 in 2028 – to coincide with the rise of State Pension Age to 67.

Of course, on the face of it this looks like you’ll simply have to work for two years more before you can start to access your pension pot. For some people, that’s exactly what will happen. However, for others, careful financial planning means that they will still be able to retire at the time they choose.

How financial planning helps you to achieve your goals

Old-school financial advisers typically look at your money. They might sell you a pension, ISA or investment product, and tinker with your portfolio periodically to ensure it’s generating a decent return.

What this approach lacks is any sense of what the money is for.

I prefer to find out what it is you’re saving and investing for. If I don’t know what your goals are – to pay off your mortgage, to help your children onto the property ladder, to retire early – it’s hard for me to put a plan in place. Only by establishing your goals can I help you to reach them!

For many clients, their retirement is one of their key life goals. Some people want to put their feet up as early as they can and maintain a comfortable lifestyle where they can do what they want with their time. Others love work and intend to keep their hand in as long as their health permits.

Both these approaches are great if that’s what you want.

If you want to retire at age 55, the government increasing the minimum retirement age shouldn’t stop you. Of course, it may mean you can’t access your defined contribution pension at that time. But, if you’ve had a financial plan in place for years with that goal in mind, you will have been working towards putting strategies in place to achieve it.

For example, drawing on your bank savings and investments for a couple of years – your cash, ISAs and other assets – could generate the income you need until such a time as you can draw your pension.

Indeed, there are actually many benefits of drawing from your cash and investments before you touch your pensions. This is not least because of the tax benefits, and the fact that pensions typically fall outside your estate for Inheritance Tax purposes, and investments do not.

3 things to think about if you want to retire early

You might live longer than you think

According to the Institute for Fiscal Studies, people in their 50s and 60s often underestimate their chances of survival to age 75 by around 20%. Their research has found that a man aged 65 is likely to believe he has a 65% chance of reaching 75, when in fact it is an 83% chance.

If you retire early, your pension pot may have to last you 20, 30 or even 40 years. That’s a lot of saving to do in your working life! So, start early, and maximise your pension contributions to take advantage of tax relief and compound growth.

Your spending is unlikely to be uniform throughout your retirement

Whatever your plans are, it’s unlikely you’ll draw a fixed amount each year from your pension. Some people will draw more in the early years as their health is good and they want to travel and make the most of their time. Others will draw less in the early years, perhaps if they are continuing to work part-time.

Whatever you decide, it’s important to have a plan in place and to work with a financial planner who can adapt your plan and create a strategy that allows for a flexible level of income.

Inflation will play a part

If you live for 10, 20 or 30 years after you retire, the simple fact is that £100 withdrawn from your fund now will be worth less in real terms in the future.

This means that inflation will either decrease your spending power, or you’ll have to increase the amount of income you are drawing just to stand still.

Source: Thesis

Even if inflation remains at the Bank of England’s target of 2% per annum, your spending power will reduce by a third in just two decades.

Again, working with a planner to devise a strategy to increase your income as required can help you to maintain the lifestyle you want in real terms.

Get in touch

To find out more about how I can help you retire at the age you want, please get in touch.

Email graeme@macfp.co.uk or call 01349 832849.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.