Deciding the best time to retire: should I keep working?
- Leanne Lancaster
- 05 June 2023
- 5 mins reading time
Retirement is an important milestone in life, and deciding the best age to stop working requires careful consideration. While there is no one-size-fits-all answer, there are several key factors to contemplate to ensure a fulfilling and financially secure retirement.
When asking whether you should retire early, remember that the sooner you tap into your pension pot, the longer it will need to last – and the more likely it is to run out. But if you do plan to retire early, then there are a few things you should take into consideration.
1. Financial readiness
One of the most crucial aspects to evaluate is your financial readiness for retirement. Consider your current savings, investments, and pension plans whilst assessing your projected expenses for the lifestyle you would like to enjoy in retirement.
This is a good time to engage with a financial adviser to determine if your financial resources are sufficient to support the retirement lifestyle you desire. Financial planners can use cash flow modelling as a tool to assess your current and forecasted future wealth. They do so by matching expected income during your lifetime with expected expenses. In simple terms, a cash flow model is a year-by-year forecast of your money coming in, your financial outgoings and the resulting balances.
From a practical perspective, you can start accessing money from your workplace or personal pension pot(s) from the age of 55. This will rise to 57 in 2028. This could be viewed by some people as the perfect time to stop working. However, if you’ve got your sights set on retiring before the age of 55, you’ll need to fill the gap until you can take money from your pension. Either by way of other savings or investment accounts where withdrawals are permitted before this age, such as a stocks and shares ISA (Individual Savings Account).
Early retirement will also have an impact on your pension as you’ll have less years of contributions, both from you and your employer, and less free money in tax relief from the government. You may not receive a full state pension either.
There is a requirement to accumulate national insurance contributions (NICs) during your working life. If you have taken time away from the workplace for any reason, such as starting a family, you can claim NIC credits. You need at least ten years to be eligible for a state pension and 35 years to receive the full amount. If you choose to stop working before making all the necessary NICs, you’ll either need to make voluntary contributions to get a full state pension, or accept reduced payments.
2. Health and wellbeing
Your health plays a significant role in determining when to retire. It’s important to consider your overall physical and mental well-being and evaluate your ability to continue working in your current job, taking into account any physical demands, stress levels, or potential health issues.
Also, think about the impact of retirement on your wellbeing. Some individuals may find continued work fulfilling, while others may desire more time for relaxation, hobbies, or spending time with loved ones.
The impact that leaving the workplace may have on your sense of purpose, identity, and social interaction shouldn’t be underestimated. If you do choose to retire completely from the workplace, you could explore opportunities for personal growth, volunteer work, or pursuing new interests to maintain a fulfilling lifestyle after retirement.
3. Life expectancy
While predicting life expectancy precisely is impossible, it is essential to consider your family history, lifestyle choices, and personal health factors when deciding on your retirement age. Remember that retirement can span several decades, and having a realistic understanding of your potential life expectancy can help you make more informed choices about when to retire.
At Schroders Personal Wealth, we encourage our clients to plan their retirement based on living to 100. Increasing longevity means that it’s crucial to determine if your savings and investments will last your lifetime.
4. Work-life balance
Retiring from the workplace doesn’t need to be an all or nothing decision. You could choose to have the best of both worlds and work part-time so that you can enjoy more leisure time whilst still earning money and paying into your pension.
Alternatively, explore options like consulting or freelancing, which offer greater flexibility and control over your schedule. Finding the right balance can help you enjoy a phased retirement and make a smoother transition to a life without full-time work. This will not only allow you to save for your retirement for longer, giving your retirement savings as long as possible to grow, but could also help to alleviate the boredom that may come from having too much free time on your hands after a lifetime of working.
Deciding the best age to retire is a highly personal choice that requires careful thought and consideration of various factors. By evaluating your financial readiness, health, life expectancy, social and emotional needs, long-term goals, and desired work-life balance, you can make a more informed decision.
Remember that retirement is a significant life transition, and planning ahead will help ensure a fulfilling and enjoyable retirement journey. Consult with a financial adviser, engage in open discussions with loved ones, and take the time to envision your ideal retirement to set yourself up for a rewarding post-work life.
Any views expressed are our in-house views as at the time of publishing.
This content may not be used, copied, quoted, circulated or otherwise disclosed (in whole or part) without our prior written consent.
The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in.
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