Four questions you need to ask before thinking about retirement

Choosing when to retire is a big decision – both financially and emotionally. Not only do you need to ask yourself whether or not you can afford to finish working, particularly in light of rising costs, but you also need to consider if you are ready for this major change in your life.

Colin Dyer, Financial Planning Expert at abrdn, runs through some key questions to ask yourself when making the decision of whether you’re ready for retirement.

What are your hopes for retirement?

The concept of ‘retiring’ will differ for everyone, and no two people’s goals or aspirations will be the same. One thing that’s also encouraging to see is that retirees are continuing to challenge the norms when it comes to enjoying retirement.

There are an increasing number of retirees that intend to do some sort of work even once they’ve officially ‘retired’ – a rise in so-called ‘flexi-retirement’. Whether it be setting up businesses, pursuing a ‘flexi-retirement’ and working part-time, or doing whatever it is that makes them happy, retirement really is what you make of it.

abrdn’s latest Class of 2022 report found that two thirds (66%) plan to continue working in retirement, compared to 56% of the Class of 2021 and 34% of the Class of 2020.

Whatever the plan, you need to do what is right for you. It isn’t going to be a decision you make overnight, but instead something you’ll work towards over a number of years. What really matters is to ‘begin with the end in mind’ – take time to really understand what you want to achieve in retirement.

Do your plans involve holidays abroad once or twice a year, home renovations, a new car and supporting the family? Or would you consider working part time and phasing your retirement, or kick starting a new career and finally pursuing a passion you’ve only dreamed about before.

Can I afford to stop working?

Before you can decide whether or not to retire, you need to weigh up your likely annual spending and calculate if you can afford to stop working.

Future expenses are hard to predict, particularly at the current rate of inflation, but to get a ballpark figure begin by taking your current regular outgoings – for example, bills and household expenses, travel and leisure costs, credit card or loan payments and mortgage costs.

Then subtract any expenses you expect to no longer have when you retire. This might be a mortgage that you’re planning on paying off soon, or perhaps commuting costs. You’ll also need to consider adding in any new ones, maybe future travel plans or supporting your children with the rising cost of living.

There are a number of online calculators that can give you an estimate of how much your annual cost of living adds up to, or you could create your own breakdown in a spreadsheet.

Do I have enough saved?

Once you know how much you’ll need, and you’ve added up your various sources of income and savings, you’ll be in the position to work out if you have enough money.

Essentially, you need to have a pot of money to last what could be 30 years or more in retirement. Don’t be disheartened if the initial number that you see from these calculators is not what you were hoping to achieve.

It might be that you need to work for a while longer, or perhaps think about how you intend to spread and adjust your retirement income. For many people they spend more in the early years of retirement and less in future.

Have you spoken to a professional?

Separate research from abrdn is highlighting the growing issue of worries and concerns in those approaching retirement, fuelled by concerns over the cost of living crisis. The research found that more than half (54%) of UK adults aged 40 years+ are anxious about retiring, while one in five (18%) state ‘retirement anxiety’, fuelled by emotional and financial concerns, is causing them to delay retirement.

If you’re not sure on the best course of action, speaking to a professional could give you peace of mind. A financial planner can give you all the advice you need on your finances, while also helping you navigate how rising inflation could impact you.

A financial planner can also help to answer all those big questions you might have. For example: Will I have enough to live on? Where should I take income from to ensure I’m as tax efficient as possible? Will I still be able to support my family? How can I access my money? How much can I expect to receive each year?

They can also bring to life your different options and provide you with a tailored plan, designed to meet your individual needs and to set you up for whatever comes next.

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