Can I afford to retire?
If you're starting to think seriously about retirement, one of the first questions you're likely to ask is: can I actually afford to stop working?
The answer isn't determined by the size of your pension alone.
To understand whether you can afford to retire, you need to look at what you have, what you want to spend and how long your money may need to last.
What do I need to consider?
Start with the life you want after work.
Think about your normal monthly spending, but also the things you might want to do more of in retirement. That could mean travelling, eating out, changing your car, helping family or simply having more freedom to enjoy your time.
Then look at what you have available to fund it. This might include pensions, ISAs, investments, cash savings, State Pension, property income or proceeds from selling a business. You’ll also need to bear in mind the different tax position for each source of income or investment.
The important part is bringing everything together rather than looking at each pot separately.
What if I retire before my State Pension?
You don't necessarily need to wait until State Pension age to retire.
If you want to stop working earlier, you need to understand how you will fund the years in between and what impact using your pensions, investments or savings earlier could have later in life.
Sometimes using cash or ISAs alongside pension withdrawals can help. In other circumstances, taking pension income earlier might make more sense.
There isn't one correct order. It depends on your individual circumstances, tax position and longer-term plans.
How can I tell if my money will last?
This is where lifetime cashflow planning can be particularly useful.
Rather than simply looking at today's pension value, we can model your finances over your lifetime, taking into account things such as spending, inflation, investment growth, future income and significant one-off costs.
We can then test different scenarios.
What if I stop working now?
What if I work for another two years?
What if markets fall?
What if I spend more during the first ten years of retirement?
What if I live much longer than expected?
It turns “Can I afford to retire?” from a difficult question into something you can make an informed decision about.
You may be closer than you think
People often assume retirement planning is about building the biggest possible pension pot.
It isn't.
The goal is to understand how much is enough for you and how to use what you've built up effectively.
You may need to work or save for longer. But you may also discover that you've already reached the point where work can become optional.
Knowing the difference can be incredibly valuable.
More retirement questions:
When can I afford to retire?
How much pension do I need to retire comfortably?
How much income will I need in retirement?
Can I retire early?
How long will my money last in retirement?
How do I make sure I don't run out of money in retirement?
I have pensions, ISAs and savings. How do I know if I have enough to retire?