Retirement is no longer the sudden process it once was. Making sure you’re financially prepared for your golden years is essential to get the most of out of this time of life.

A few big trends have emerged among older workers in the past thirty years. According to Government data, the number of over 50s in work has increased significantly, from 57.2% in the mid-1990s to 72.5% in 2019.

The average age at which someone exits the labour market has also changed, rising to 65.3 years for men from 63.1 and 64.3 years for women, up from 60.6.

However, the statistics don’t illustrate how much the nature of retirement has changed in recent times. That is to say, people are now less likely to just down tools one day and decide “ok, finished, now what?”

Instead, it is becoming increasingly common for older workers to reduce hours, try new ideas or projects. Put simply, retirement isn’t quite what it used to be!

This has come from two directions, partly from pressure caused by State Pension age uplift, but also from those who have been able to plan effectively giving them more options in later years.

This flexibility allows people to pursue more options later in life and live a more active retirement.

So, what are the key things to consider when you’re looking to work less and enjoy life more? Here are some key considerations.

Income needs

The first point to begin with is looking at your current income, between yourself and your partner if you have one.

The ‘rule of thumb’ is you’ll need one third less income during retirement than working years. However, this is mostly predicated upon not needing to pay a mortgage any more so may or may not be the case depending on your situation.

You’ll also want to consider what kind of retirement you want to have. Do you want to travel the world? Or are you happy tending to your garden and taking care of grandchildren? Either choices are perfectly laudable but come with potentially different cost implications.

Debt reduction

Have you got any debts? While short-term debt such as credit cards should generally be avoided, personal loans for big purchases such as cars, or mortgages, are not uncommon. It is worth considering if you want to prioritise clearing some of these so as to remove them as an obstacle to beginning an assured retirement.

Cashflow planning

Cashflow planning is a critical aspect of looking at when and how you can retire comfortably. Wealth is often structured through key assets such as investments, but these are often distributed in pensions, ISAs, property, and other vehicles.

You might have a good amount in all three, but planning for accessing that cash takes some consideration, particularly when it comes to looking at how far it will go in the long term.

Cashflow modelling can help you to understand how much you’ll be left with depending on what age you stop earning a work income, and how much you can expect from your various funds. It will also incorporate other key income sources such as State Pension, which can prove valuable later in life.

Wealth structure

The structure of wealth is really important here too and will dictate how that cashflow is able to be managed. Pensions typically form the bedrock of a portfolio and come with certain tax implications that need careful attention.

The 25% tax-free lump sum can be an extraordinarily useful tool for example, but deciding if you should draw down on an ISA or pension first, or even continue to contribute more for longer, is difficult to get right.

The structure of your wealth will also have a big implication on future tax liabilities and needs to be carefully considered.

Investment glidepath

Finally, within that structure you’ll need to consider how much of your wealth is invested. Typically, when you’re in working years, you’ll be invested in assets that bring better long-term returns such as equities.

However, as you near retirement you’ll want to consider what is called a “glidepath”, whereby your asset mix moves to a more conservative footing in order to minimise portfolio volatility. This is to prevent a situation where you’re ready to retire, but owing to macroeconomic factors, your portfolio isn’t!

Ultimately, the best preparation for an active retirement is to plan well ahead and have a clear idea of what your goals are. However, it is also fine if you’re not 100% sure. We spend the best part of our adult lives in work, so leaving it can be a daunting prospect.

To make sure you’re on the right path, don’t hesitate to get in touch with us to discuss your options.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.

The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.

All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th June 2023.