Whether you’ve always liked the idea of a long retirement or would like to stay working for as long as possible, there are a number of different factors that could influence what the ideal age for you to retire might be. What’s more, the number won’t be the same for everyone.
Up until 2011, the UK had a default retirement age of 65 years old, which meant that employers could make their staff retire at 65 regardless of whether employees wanted to carry on working or not. The default retirement age was abolished in October 2011, giving people more choice about when they stopped working. Now, many people will think about retiring when they become eligible for the state pension, which will be 66 for both men and women from 2020 and increasing steadily after that. So when is the ideal time to retire?
Bear in mind
While this differs for everyone, there are some key things to consider. Namely, how much is in your pension pot and will this provide enough to sustain you throughout retirement? If you’re thinking of retiring at 55, calculate whether your pension pot will be enough to support this.
Another key question is around health. If you have any medical conditions that are exacerbated by working life, you may want to bring forward your retirement to ensure you can enjoy it in the best possible health.
As well as your physical health, it’s worth thinking about the psychological aspects of retirement. While some people may have grand plans to retire and travel the world, others are concerned about factors like loneliness, financial strain, lack of routine and the pressures this might exert on their relationships. Research from Age UK found that 1.2 million people aged over 65 in England are persistently lonely, so it’s important to think about the sort of lifestyle you want in retirement and how you will manage without regular interaction with people at work.
Whether for financial or psychological reasons, it’s worth asking yourself whether you want to retire completely, or if you’d rather continue working – perhaps in a consulting or part-time capacity.
To explore the best retirement age for you, take a clear look at your financials. Carefully calculate your retirement income from your workplace pension, state pension, personal pension and any other investments you may have. It’s a good idea to start with a detailed budget of your outgoings: there will be essential spending that you will have each month – for example, bills, food, travel – and then luxury items that you will choose to spend money on – such as leisure activities and holidays.
It’s always worth considering the earnings prospects for each year you stay in employment – the trade-off may be worth it in the long run if it provides better financial security. For example, each year that you retire early, your potential investments reduce by a year, you lose a year in investment growth and you add a year in expenses. While this isn’t necessarily a deterrent, it’s something to bear in mind.
As a rough guide to see if your savings are enough to retire on, you can use the multiply by 25 rule. Work out how much you want to live on each year in retirement, minus your state pension benefits, and then multiply this by 25. This gives you a rule of thumb. If your savings match up, you may be financially ready to retire.
And if they don’t? You may have to reconsider your plans. You can delay retirement, or you can rethink how much money you have available, or possibly work part-time for a while.
So when is the perfect retirement age? Well, the reality is that it’s up to you, but making an informed choice can help you enjoy retirement to the full.
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Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Pension rules apply and tax rules may change in future. If you need help with pensions, seek independent financial advice.