What is retirement? Does it represent freedom and having time to do what you want to do? Or is it old age, being anxious about not having enough money, and something to avoid?
Retirement means different things to different people and may not be a golden period in your life. Few are lucky enough to have it mapped out. For most, you figure it out as you go.
Few people retire more than once. It is binary. And you can't start over if it goes wrong. Retirement is therefore important.
There are some key lessons, not textbook theory, but real feedback from people who have done it.
The six stages of retirement
- Pre-retirement – the time to plan. When you are young, retirement is a long way off. During your 20s and 30s you have a mortgage to contend with and raising a family. At some point in your late 40s or early 50s, retirement will creep to the front of your mind.
- Retirement – excitement, handshakes, and farewells. Endless options and off you go – it’s a fun time for most people.
- Honeymoon – everything is going well, you are busy indulging in activities you didn’t have time to do before. You have holidayed, taken up new hobbies, lost a few pounds. “I should have done this earlier,” you say to yourself.
- Discontent – life is getting repetitive; it is not as good as you thought. You are lonely, bored, and feel less useful than you once did. “What’s my purpose?” you may ask yourself.
- Reorientation – the discontent phase does not last. There is a new phase in your life and you get on with it. You have navigated through discontent and have created a new life for yourself.
- Routine – your new life settles in. You have stability and calm. An established routine, time for you, time for your family. Everything is mapped out, familiar, and you have re-found your sense of purpose.
Retirement is a unique emotional journey you can prepare for. Most people transition from employment to retirement. We asked some to share their experiences and top tips.
Meet John and Edwina
John and Edwina retired to Wales several years ago. They left London to spend time in the beautiful Welsh mountains and spent their summers by the sea in Norfolk.
Tip 1. Get engaged and include both partners in the retirement process
Edwina had a different view of retirement as she did not have the pension that John did.
“No one talked about pensions, not even at school, so I did not think about it or understand it. It was scary to leave the planning to the other half, so it was important to be included. I was relieved when John decided to get help. He was working so hard and I wanted him to retire to relieve the pressure. To be included was wonderful. I have confidence and know exactly what’s going on.”
Tip 2. Start planning at least 15 years out and set up a pension as early as possible.
John said he never thought his pensions would generate a decent income and it was a surprise how well they have done.
“Running my own business, I was skint a lot of the time. But we did manage to put some money in early on. I would recommend you do it from day one as over 40 years it would be worthwhile. At retirement, the pension pot was more useful than I thought.”
Tip 3. Know your numbers.
“I never looked at the finances whilst working because it was often bad news. You should not have sloppy finances when you retire so get a handle on the money. Clear your mortgage, know what you spend each month, and plan extra for unknowns. We have a budget we stick to - we have control day-to-day, which is great.”
Tip 4. Get good with your hands.
By this, John means get hands-on.
“The gap in the middle of the day can get a bit mundane. You have days to fill so being able to do jobs around the house keeps you busy and active. Phasing my retirement was good as I learned to fill the void, I cannot recommend it enough.”
Tip 5. Move on.
“Don’t try to keep the life you had. There will be changes in retirement so embrace it. When I stopped I thought I should fill the time in any way I could. But quick-fills do not work. I learned to have several interests and keep myself occupied. Accept you will have times doing nothing in particular.”
David left the London insurance market and lives his ideal retirement life playing tennis, travelling, trips to Europe, and spending time with his friends and family at local restaurants.
Tip 1. Be honest with yourself and start asking serious questions.
David stressed that it’s important to consider the emotional in addition to the financial side of retirement planning. One without the other will not work. In the planning stage he had many common questions and concerns which required answering:
- "I haven't enough money to retire."
- "I'll get bored to death."
- "My friends are in the city."
- "I'll have to spend 24/7 with my partner."
- "I enjoy working and will carry on for as long as possible."
- "I've worked at a few places and don't have a clue about my pensions."
- "I'm waiting for redundancy."
- "I'm waiting on a relative to leave money to me."
- "How can my pensions pay me what I'm on?"
- “To be honest I wouldn't know where to start the process."
Tip 2. Get positive about retirement – changing the language helps
“Expressions to describe financial freedom are old-fashioned. ‘Retirement’, ‘pensions’ etc. They foster a feeling of pessimism and entering a phase of demise, not excitement, relief, and security. This is possibly the most significant emotional thought which deters people from planning. ‘Financial freedom’, ‘self-management’, and even ‘financial independence day’ are expressions which describe choice, security, and eliminate the outdated language which dissuade people from planning their future.
Tip 3. Get to know what your money can do - it can work for you during retirement too.
It is important to understand the scale of earnings on assets. I have been invested for five years taking a “salary” and have not touched my original capital investment. This is a powerful statement describing that whilst spending, you can earn.
Meet Mike and Norma
Mike and Norma retired within a couple of years of each other. Norma retired immediately with a hard stop, whereas Mike phased his retirement over several years.
Tip 1. Know the numbers so you can concentrate on the emotional side of retirement.
Mike said he discounted retirement at first because he felt he could not afford to do it, resigning himself to the thought that he would work until 65. But working for a huge multinational was not as much fun as it once was, and he wanted to move on and pursue activities which were not as well-paid.
“So, I decided to employ a financial adviser to see if it was possible to retire. When they said yes, it provoked more thought and I had the freedom to think. With the benefit of hindsight I should have acted earlier.
Tip 2. Get a shed and start building the world around you.
“Knowing I could retire gave me time to think and explore other interests, future hobbies, and I got all excited. I didn’t realise it at the time, but my work was tiring and enough was enough. I spent one year preparing for my retirement in my shed. I recommend you have a calm place to go and think.”
Mike was able to leave the multinational and join a charity as he could afford the move. Retirement was not one big step – moving to the charity meant he could fulfil more altruistic activities while getting paid, but with without the stress and he was able to plan for retirement.
“I remember saying to myself that it is best to retire with a smile on my face than leave in 12 months’ time with a grimace.”
Tip 3. Have a plan and understand it.
Norma retired before Mike and it was a hard stop.
“I thought retirement would be nice, so I did it. I did the emotional bit before the logical bit and ended up a little worried. Mike was keen for me to create a new life. I had retired without a plan and drifted and started to spiral downwards. But then I started to do more activities and built a weekly routine.”
When Mike retired, Norma was happy for him but concerned about the money. Mike was still working when she retired so she knew where the money was coming from each month.
But when Mike retired, she thought “that’s the last big piece of money we were going to get. In my mind I knew we had money, but I couldn’t plug the gaps between what we spent and had coming in. We needed to take money from our savings each month and it worried me. But now that I understand the finances, I am much more calm.”
Tip 4. Mind, body, and soul.
Reflecting on their retirement journey and being in a good place, Norma suggests that the key to a great retirement is to do things which stimulate the mind, body, and soul.
“Preparation is important. Allow yourself to ponder what you want to do. Do not feel pressured. For me, I thought my mind is about creativity, the body is about exercise and well-being, and the soul is about giving to others. So we still work but just don’t get paid. We volunteer, coach, and mentor; we use the skills we have in non-paid activities. We have taken up new hobbies to fill our need for creativity, exercise regularly, and are active within the church too.”
It is never too early or too late to start planning the financial freedom retirement may bring.
Capital are experts in helping people prepare financially and emotionally for retirement. If you would like to know more about how we can help you at this crucial stage in your life, do get in contact.