Should you carry on working, or retire early? What is the best choice? Have you made the right plans for your retirement? This blog will help you to answer some of these questions.
Recent academic research suggests that nearly half of the current workforce plan to continue working after 65. What is your plan? Explore some pros and cons and pitfalls of preparing for retirement. As the famous phrase goes, the best-laid plans of mice and men often go awry.
If you are on your own path to retirement, this blog is for you. Taking a decision to retire early cannot be undone and may lead to years of regret. This is why the decision is so important.
According to The Guardian, the number of over-seventies in work in the UK has more than doubled in the last decade.
You may have planned well for retirement. You may have the best intentions to plan well for retirement. Alternatively, you may have relegated planning to an afterthought by opting to work longer.
If this third approach captures your position, you are not alone.
To work or not to work?
Working beyond 65 does not have to be a bad thing. Data has found that working longer is associated with a reduced mortality rate for men in their early sixties.
The problem with the plan to extend when you retire by working longer is that you may not get the luxury of retiring when you want. An academic study completed by the Center for Retirement Research found that over a third of workers stopped working earlier than they intended to.
You may feel that you will not be affected; you may be well-respected in your industry or enjoy your work. However, early retirement can often be caused by factors outside of your control.
There are four unexpected changes (shocks) that are most likely to interfere with your retirement plans:
- Health changes
- Employment and job-related changes
- Family transitions
- Financial changes
1. Health is number one
If you plan to retire later in life, you need to assess whether your health will support this choice. This is especially true if you plan to work into your sixties (or later) to fund your retirement.
If you already have health issues, then relying on maintaining relatively good health to stay in work may be unrealistic. The ongoing impact of pre-existing health conditions is often underestimated. There may be sudden unexpected conditions that have a great impact.
2. Employment and job-related changes
There are three important employment changes that should be considered — a voluntary change to a new employer, job loss that is followed by finding a new job and job loss that is not followed by a new job.
A New York Times article entitled 'Why working till whenever is a risky retirement strategy’ tells stories of workers who lost their jobs in their fifties and sixties and who struggled to earn the same wage when they returned to the workforce.
Furthermore, the data cited suggests that job loss and struggling to find a new job leads to disenchantment with the job market and acceptance of early retirement.
3. Family transitions
Outlier events that happen less frequently can also have a significant effect in forcing you to retire early. Having an ageing parent move in with you has a significant emotional effect; as does the job loss or ill-health of a spouse. Financially supporting adult children can have dramatic effects on retirement planning.
If you are still working and a parent moves in with you, you are more likely to retire early. This represents a double whammy to your retirement savings: potentially higher costs and reduced earnings.
A financial shock is a large fluctuation in personal wealth levels.
A change of circumstances that does not have quite the same outcome is often a financial windfall. You may imagine that a lottery win or a significant inheritance is a reason to stop working. It often is not.
You can view this as an optimistic indicator that people broadly enjoy their work or profession. It may also mean that people are simply in their routine and that a material change to their circumstances will not help break them out of it.
Pushing or pulling
Ideally, stopping paid work should be a pull-factor; a project or opportunity that excites you. This is in contrast to a push factor, such as when work is not enjoyable. Running towards something good is better than running away from something bad.
It seems that a financial windfall does not unlock the pull-factor. Too often push-factors determine people’s decisions to stop paid work.
Planning your retirement needs to be viewed through two separate lenses.
Firstly, what do you want from life, work and eventual retirement? Maybe you are happy to keep working, or you do not need much money to pay your bills and to enjoy life fully. As circumstances and tastes change, these ideas will also change over time.
Secondly, is your plan realistic? Will you be able to afford the lifestyle you imagine, and will you be able to work as long as planned?
Do not leave things to chance
If you need or want to work longer, the number one drawback will be suffering from poor health. All of your plans could be ruined.
Working with an adviser who has guided countless people just like you through the minefield of retirement planning is an invaluable resource; easing your concerns and helping you plan realistically for the future.
If you have questions about what retirement might look like or how best to prepare for retirement contact Capital.