Mailbag: How do I know if I can afford to retire?

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Dear, I don't know when I should retire. I always thought I'd stop working at 60, but would I be better to carry on working until I am 63 or 65? Tom, Bristol 


This is the million dollar question for many people. And the answer of course depends on whether you have saved enough to achieve the standard of living you need in retirement, and have that little bit extra to fall back on should your plans or circumstances change.

For some, this might be age 60 but over the last number of decades this has become increasingly difficult as life expectancy continues to improve and retiree’s savings need to stretch that much further. Retirement patterns are also changing with more people looking to work part-time or moving to a less stressful job, either because they want to continue in employment or because they have to.

A recent survey found that 11% of over 60s plan never to retire – both for financial and social reasons.

According to Andrew Pennie, marketing director of retirement planning firm Intelligent Pensions, the most effective way to establish whether you have saved enough money to retire is to undertake a retirement cashflow modelling exercise, ideally with the assistance of a qualified retirement specialist.

A quality retirement modelling tool will:

  • Take account of all your possible income sources; looking at all of your pensions and also your other assets and potential sources of future capital.
  • Take account of your needs for future cash and income and test the sustainability and feasibility of these objectives.
    • The model should take account of future inflation.
    • Furthermore, a really good modelling system will test and demonstrate the impact of a stock market crash on your future retirement income.
  • Demonstrate the potential options for taking retirement income from your pension – annuity, drawdown, cash-out or indeed any combination of these.
  • Be able to show the impact of retiring earlier or later and realistically when you can afford to retire and achieve your objectives.
  • Be able to show the impact of saving more or changing future cash/income requirements.
  • Inform the most appropriate investment strategy for you to adopt with your pension in the years approaching retirement.

Pennie says: “It is important to remember that a cashflow model will only be completely accurate at the time it is built. External markets will naturally change and personal circumstances and objectives could also change over time. As such, it is important to review your retirement cashflow model every year and make changes as appropriate.

“With effective retirement modelling pictures really can paint a thousand words, helping you see and understand your financial future and plan your retirement with confidence.”

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