How can we plan for early retirement?
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My wife and I have decided that we want to have a complete lifestyle change – to make the most of our grandchildren and enjoy trips away (when we can). To do this, we would both need to take early retirement – I’m 62 and my wife is 59. We both have private pensions but wonder if we should start taking an income from them, or just use savings and the tax-free cash part of the pension, in the first instance?
Richard Barker of Smith & Pinching responds:
The trouble with taking early retirement is that your carefully accumulated pension pots are going to have to last a few years longer than you had originally planned – and they may well be smaller pots in the first place if you are missing out on a number of years when you might have added further contributions or earned additional entitlements.
I firmly believe that you should take independent financial advice from a firm of Chartered Financial Planners before you make a decision to ensure that you can achieve the lifestyle you want when you do retire. The last thing you want is to find yourselves in later life without the means to provide for your needs.
There are certainly plenty of options for you to consider and you have identified a couple of them – using savings for your early retirement expenditure or taking the tax-free portion of your pension fund. Which would be best suited to you and your wife will depend on a whole range of personal and financial factors.
We would need to look at your current pension funds to evaluate how and where these are invested, as well as all your other savings and investments. In addition, we would need to consider your income needs for different stages of your retirement, to ensure that these are achievable.
We use Lifetime Cashflow Planning to explore the impact of different scenarios on your finances including different retirement dates, different income levels and different types of retirement income. We may indeed find that you have amassed sufficient retirement benefits to just go for it now and retire – but without looking at the real numbers, you cannot know for sure.
Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk