How To Decide Whether You’re Financially Secure Enough To Retire
After years of hard work, time and dedication, it's safe to say you've earned a happy retirement.
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.
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.