Gone are the days when people could expect to work for a single company for their entire career, receive a pension at 65, and spend their golden years relaxing and enjoying their hard-earned leisure time.
These days, more and more people are opting to do things a little differently, with some not retiring at all and others only semi-retiring.
Research from Fidelity International found that although the majority of workers in the UK plan to retire at 66, just over half expect to continue to work at least part time. The same poll found that 45% expect to work into their 70s, while 9% expect to work into their 80s.
Whether this is down to financial necessity, or simply because people want to work longer, there’s no doubt that things are changing.
Why has the traditional notion of retirement changed so drastically, and what does it mean for our finances?
The old view of retirement
The concept of retirement can be traced back to German Chancellor Otto von Bismarck who, at the end of the 19th century, proposed the idea that those unable to work any longer due to old age should be provided with financial support from the state. During the Industrial Revolution, when most work was hard, physical labour in factories, this made sense.
But as the nature of working life changed from factory floors to the office, the old, traditional view of retirement persisted. Until recently, most people worked as hard as possible for 40 years or so until collecting their gold watch, donning a pipe and slippers and settling down to watch TV, with perhaps the occasional round of golf on the side.
The dividing line between working life and retirement was a stark one.
But that has all changed
One of the main reasons for this is an increase in life expectancy. The average UK life expectancy for men and women is 79 and 83 respectively, which means that we’re able to work a lot longer.
This provides people with many more options; retirement is now seen as an opportunity to tackle new challenges, learn something new, or start a new business. For example, a fifth of new businesses in the UK are founded by those over 55.
This new approach also comes with health benefits. For instance, the Harvard School of Public Health discovered that those who retired were 40% more likely to suffer a heart attack or stroke in the first year after retiring than those who kept working. Mental health gets a boost too, with those who retire being more likely to suffer from depression.
The need for retirement planning
However, because retirement is now a lot more varied, there needs to be a more flexible and sophisticated way of planning for it financially.
The good news is there are plenty of options these days, which means you can create a solution that suits you.
The Pension Freedoms legislation that was introduced in 2015 means you can access your pension in many different ways from age 55.
For example, pension ‘drawdown’ means that you can access a regular income from your pension, leaving the rest invested. You also can withdraw cash as a lump sum, for a one-off purchase, again leaving the rest untouched.
However, there are some tax implications to be aware of. For example, normally the first 25% of a fund withdrawn is tax free and the remainder is treated as taxable income.
Pension consolidation
Retirement planning isn’t just for those nearing retirement. There are ways you can maximise your options when you’re in your 30s and 40s too.
For example, do you know how many pensions you have, or their cumulative value? Many of us will have worked for several employers and accrued a number of different pension pots and / or pension schemes over the years. Consolidating your pensions into a single plan could help to simplify your arrangements and may even be cheaper.
You’re not on your own
This may seem overwhelming, but we’re here to help you with every aspect of retirement planning, no matter what stage you’re at.
Perhaps you have put serious thought into your retirement and have a plan in place? That’s great, however, a lot can change in a short space of time, such as your long-term plans, when you want to retire, and government legislation. With so many moving parts, it’s a good idea to conduct a thorough review to make sure you are still on the right track to reach your retirement goals.
On the other hand, you may not have given much consideration to pension planning, in which case we can help you by sitting down and working through the key questions, such as:
When do you want to retire?
What kind of lifestyle do you want to live in retirement?
Do you want to pass money to your loved ones?
Knowing the answers to these questions will not only allow you to enjoy the retirement you deserve, but will also make the years leading up to retirement less stressful.
We can help you through every step of the journey
We can review your savings and investments and make sure you’re on track to reach your retirement goals. We can also help you adjust your plans if necessary, such as by working longer or saving more.
As the year comes to an end, you might be starting to think of some resolutions for the New Year. Why not start 2023 on a firm footing by finding out exactly where you stand with your retirement plans?
Please get in touch with our expert team to find out more.
Based on tax legislation at the time of publication. Please be aware that there will have been changes since this was published. Speak to your adviser for the most up to date information.
