With a quarter of the UK’s working population now being supported by the government’s furlough scheme it’s reasonable to assume that for some older workers, working from home has opened their eyes to what winding down their working life could look like. Tim Anderson, an independent financial adviser based in Wren Sterling’s London office talks about some of the questions and sense checks people can ask themselves if they’re considering reducing their working hours or retiring.
I think lockdown has definitely been a window for some people into a lifestyle after work. Whereas some people historically have come to a hard stop – one day they’re working and the next day they’re not, the trend now is to phase retirement in.
If someone was considering retiring anyway in the next year or two, they may decide that going back into work after the furlough scheme ends to be a step too far and they could start looking at their finances to see what’s possible.
For anyone contemplating reducing their hours, there are a few simple questions to ask. The most obvious is around income levels.
Firstly, if your salary were to fall because you’re going part-time or you’re stopping work altogether, what would that do to your ability to pay your bills?
Secondly, what would you do in retirement or semi-retirement?
Lockdown has been a unique situation because the barriers of what we can do have been set by the government but if they were lifted and you could travel freely for example, what would your ideal retirement look like and do you have the means to achieve it? The social aspects of our lives (restaurants, pubs, theatres, football matches, holidays etc) have been curtailed of late so you might feel like you have extra cash in your pocket but these options will return one day, so think carefully.
Choosing to retire before working out what you’re going to do is generally a bad idea because it can be difficult to reverse the decision. Making big decisions in a crisis is also a bad idea, so take your time.
One of the hidden challenges of retiring now is around dependants. Children and grandchildren may not be as secure financially as they were previously. They might have been affected by redundancy, furlough or other forms of lost earnings so having a regular income for the next year or two could be a big help for family members before you start retirement. If leaving a legacy is important to you in your retirement plans then you’ll need to consider this carefully.
Coronavirus has undoubtedly raised awareness of our own mortality. Working out how long we’re going to live is impossible but knowing what the timeframe might look like is important for calculating how long you need your money to last to avoid it running out. There are clues in your medical history and lifestyle and if you don’t like the idea of your money running out, there are annuity products to pay you a guaranteed income in retirement.
If you do want to consider an annuity because of the guaranteed income, an independent financial adviser can help you shop around for the most appropriate product because in some cases, your medical history can enhance the annual amount you will receive.
The usual rules apply
Coronavirus aside, having a strategy for taxation in your retirement plan is very important. Drawing pension funds in one go will usually incur a tax charge, wiping out years of careful savings that could be released over time.
Sometimes there will be savings or investments better placed to meet an immediate cash need rather than your pension. Just because you’re retiring doesn’t mean you need to access your pension straight away. Remember, If you’re going to access your pension, always speak to a financial adviser to see if you could be charged.
Protection is equally as important. Many employees have income protection or life insurance through their employer. If you leave or go part-time it’s important to check that you will not leave yourself or your family exposed. Again, an independent financial adviser can help you search the market for the product that best meets your circumstances.
The Financial Conduct Authority does not regulate taxation advice.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.