Can you retire?
As the charity Age UK reminds us, employers cannot stop you from working solely based on your age – the so-called Default Retirement Age was scrapped in April 2011. That means you can continue working beyond the current State Pension age of 66.
The flipside of that coin is that you may also retire at any age you choose.
Probably the most significant factor in determining when you retire is your financial situation: How will you be funding your retirement years when you are no longer working? And, what pension arrangements may be available to you?
For all practical intents and purposes, currently, the earliest you can access your occupational or workplace pension savings is when you reach the age of 55 – though this is set to increase to 57 in 2028 as we reported recently.
As Which? magazine points out in an article last updated this September, however, you may be in a scheme which has a prescribed retirement age, and if you want to access your pension before then, you may need to pay a penalty.
The earliest age at which you can claim your State Pension – the so-called State Pension age – is now 66. Since April 2010 the State Pension age has undergone radical changes. First, to bring both men and women under a common State Pension age of 65. Then, raising the age for both men and women to 66 with effect from last month. There are also further increases to age 67 between 2026 and 2028.
Your retirement income
Once you have established your minimum retirement age, you might want to look more closely at your retirement income from that date.
If your savings are in a defined benefit (DB) – or final salary – pension scheme, it is relatively easy and straight forward to calculate the income, you will receive on retirement. The administrators of the plan will have been sending you annual statements of the savings in your pension pot and how much you might expect to receive when you retire.
If you have been paying into – or have switched to – a defined contribution (DC) pension scheme, the eventual value of your retirement income depends on the performance of the funds in which the scheme has invested. The Money Advice Service suggests that, during the ten years before your planned retirement date, you consider transferring some of your savings into more secure, lower-risk investments.
Up to two years in advance of your retirement date, you can also get an estimate of the income you will receive from your State Pension. This is calculated according to the number of National Insurance contributions you have made up to the maximum of 35 qualifying years.
If your investigations suggest that you are facing a shortfall in the retirement income you had expected, you might decide to:
- increase your contributions into your workplace pension scheme in the remaining years – or buy extra years to increase your State Pension qualifying years; or
- delay the date on which you take your retirement.
Current loans and debts
Your ability to retire – and the ease with which you will be able to manage your retirement income – is likely to be improved by clearing as many outstanding loans and debts before you retire.
At the very least, make sure you know how much you owe, the rates of interest attracted by those outstanding debts, and when you expect to have repaid them in full.
This is all part and parcel of the budget you need to prepare that takes into account the reduced income on which you are likely to be living post-retirement.
Planning for retirement
Although there is effectively neither an upper nor lower limit to the age at which you retire, you will need to look to your financial situation before deciding on your retirement date. This requires the forethought and planning we have briefly outlined above.
This data is correct as at the time of writing.