Annie Button, professional content writer and branding aficionado, discusses the key factors to consider when deciding  whether you're financially secure enough to retire. 

However, before you hand in your notice for the final time and embark on a life of volunteering, travelling, charity working, fishing or whatever you envisage yourself doing, it's important to weigh up whether now is a good time to retire or not. Choosing to retire is a big decision, after all, and it is one in which many workers are actually a little scared of making. This is largely due to the horror stories that many people will have heard about those who retired too soon, resulting in a combination of financial, income and lifestyle restrictions as a result. What's more, with the coronavirus pandemic adding another layer of uncertainty to the world's economics, the decision-making process has become even more complex for pre-retirees weighing up whether now is the right time or not. So, with this in mind, we thought we’d try and address one of the key questions many people ask when deciding when to retire: how do you know if you’re financially secure enough? Join us as we discuss how you can work this out for yourself.

Think about your bills, bills, bills

To determine your financial stability, your first port of call should be to look at your incomings, outgoings and bills, bills, bills. If you still have mortgage repayments to make, for example, ask yourself how you will be able to fund them during your retirement. Would it make more sense to pay off your mortgage up-front before you retire, freeing up a lot more money for your post-retirement plans? Or will you still be unable to for a few years yet?

 You will also need to consider the other utilities costs as well. While you should see your commuting costs come down during your retirement, spending longer at home could increase your gas, electric and entertainment bills significantly. Therefore, weigh up whether your pension pot will be able to cover these costs.

 Weigh up what you want

 It’s all well and good making the decision to retire but it’s imperative you don’t underestimate what that will actually involve. The amount of money you need will largely depend on how you foresee your retirement going. If, for example, you fancy travelling the world in your newfound downtime, that will cost a lot more than simply spending more time in your home and garden.

 As such, it’s important to follow the three tips listed below:

 1. Know what you have. Put simply, you need to understand what exactly your pension can do for you when you retire, especially when accessing it under the updated Pension Freedoms Rules. Only you will be able to determine whether what you have available is enough to support the retirement lifestyle you want to lead. 

2. Know what you want. Along a similar theme, while you don't need to explicitly decide what you want to do in your retirement in advance, it will certainly help when it comes to addressing doubts over your post-retirement financial security.

3. Know how long to plan for. Almost 80% of people aged over fifty underestimate their life expectancy. As such, it's important to think realistically about how long your retirement is likely to be and how long you'll need to keep your pension running.

Think about your family

 If you have children, answering questions about your financial security when retiring could depend a lot on them and their circumstances. If, for example, you have aspirations to help fund the home purchases of your children or grandchildren, it’s important to include these when deciding whether to retire or not. While taking out an equity release mortgage can help during these moments, if your pension income is unable to cover the repayments you’ll need to make for releasing equity on your home, you may be unable to help in the way you’d like. Therefore, be realistic about what you think you will – or won’t – be able to afford to help your family out with after you’ve retired.

Final thoughts…

Deciding when to retire is one of the biggest decisions you’ll ever make, and is certainly one you don’t want to rush. However, taking the time to make sure you are financially secure to retire should provide you with the reassurance you need to make the best decision for your future.

To hear about the insurance industry’s evolution in the past 40 years, this month Finance Monthly reached to Joseph Petrelli. Mr. Petrelli began his insurance career in 1969 as a work study student at The College of Insurance, working for the predecessor organization to ISO. Since that date, he has been providing both actuarial and financial analysis expertise to the Property and Casualty (P&C) insurance industry. He has been actively engaged in the Title insurance industry since 1985. He has experience with loss and loss adjustment expense reserve evaluation, product development, and pricing for all P&C and Title insurance products as well as expertise with loss cost filings and Financial Stability Ratings^® (FSRs).

 Prior to founding Demotech, Inc. in 1985, he was employed by a large national P&C insurer, a regional property and casualty insurer, as well as Insurance Services Office.

 Mr. Petrelli is the author of What We’ve Got Here Is a Failure to Communicate – How Traditional Financial Reporting Contributes to Misunderstanding of Title Insurance Loss Activity and has been published in many of the leading industry trade journals.

 He is a Member in good standing of the Casualty Actuarial Society, American Academy of Actuaries, Society of Actuaries, and the Conference of Consulting Actuaries. Mr. Petrelli has a Bachelor of Actuarial Science from The College of Insurance (St. John’s University) and an MBA from The Ohio State University.

You have more than 40 years of progressively responsible property and casualty actuarial and financial analysis experience - how has the industry evolved over time?

The insurance industry’s evolution over the past four decades has been driven by the two concepts underlying Demotech’s name; demographics and technology. Demographics has impacted the life, health, property, casualty and title insurance sectors. Many life insurers now have clients that have lived to be 100 years old!  Whether the issue is the graying of the insurance industry, the transition of leadership positions from Baby Boomers to Millennials, changes in the generational perspectives with regard to homeownership, telecommuting, personal, face-to-face service versus online efficiency and the implied cost savings of same, or 80 and 90-year old men and women having the physiological capability to live independently with a quality of life that is unprecedented: demographics is the driving force behind the evolution of the industry.

Similarly, technology has been instrumental in enhancing physical safety and ecological efficiencies; whether through automated safety apps that protect one’s home and contact you via smart phone when the doorbell rings or thermostat controls on a smart phone app. Concurrently technology offers challenges associated with cyber security and cyber bullying that emerged over the past several years.

Can you tell us a bit about the Financial Stability Ratings^® that Demotech offers?

Financial Stability Ratings® (FSRs) summarize our unique perspective on an insurer’s ability to honor meritorious claims or otherwise defend the policyholder.  “Stability” is the key variable that financial strength ratings often fail to measure. Stability implies that an insurer is focusing on core capabilities and sticking to its knitting. The best way to stay out of trouble is to do what you know how to do.

Other rating services seem to believe that possessing an abundance of capital concurrently provides the experience and expertise to assimilate into lines of insurance or geographical areas that are unfamiliar to the insurer. Stability and a focused and executable business plan are the keys to survival.

How do you tailor your services to the needs of each individual client?

We do not rely on black boxes, secret formulae or subjective criteria to assign our FSRs. We believe that ratings should be transparent and fair. In fact, we have created the phrase, Transfairency to describe our process. Tranfairency refers to a review and analysis of insurer financial stability that is fair and transparent. We believe that a process is fair when review and analysis focuses on balance sheet fundamentals presented over time, the quality and quantity of reinsurance, the carrier’s business model and the breadth and depth of its enterprise risk management program.

In terms of market competition, where does Demotech stand globally and what are its goals moving forward?

In the area of insurer ratings, as opposed to the rating of insurer investments and debt obligations, the reality is that a monopoly exists in insurer ratings. Despite the existence of a monopoly and the restraint of trade or boycott of duly licensed insurers that it creates, we have more than 400 clients operating in the US, District of Columbia and Commonwealth of Puerto Rico. We chip away at the monopoly each and every day for the purpose of leveling the playing field for financially stable insurers.