Careful consideration required before taking early retirement

Careful consideration required before taking early retirement

It is the dream of many to retire early. During the COVID-19 pandemic, 270,000 people in their 50s and 60s left the UK workforce, according to the Institute for Fiscal Studies. There are, however, some concerns that this could lead to retirement poverty, as two thirds of people aged 50–70 who quit work or lost their job during the pandemic left the workforce earlier than expected. This means that they might not have the funds they need for a longer-than-anticipated retirement. The issue has been exacerbated by the cost-of-living crisis that is gripping the UK and beyond.

Those who took the decision to retire early before inflation and soaring prices ran riot are undoubtedly feeling the squeeze, with growing concerns over whether retirees will have enough cash to see them through. While the prospect of accessing pensions early could be appealing to negate this, there are financial impacts that need to be considered before doing so.

Accessing pensions before reaching the required age could reduce them significantly and lead to savers running out of money earlier into retirement. Those thinking about retirement should also undergo their own budgeting exercise to determine how long their savings will last given the rates they anticipate spending down on their funds.

Compounding the issue is the fact that those who now want to re-enter the workforce are finding it difficult to get rehired. According to research from the Centre for Ageing Better, 27% of all people aged between 50 – 64 are “economically inactive”, neither in work nor looking for work, this figure is up from 25.40% before the start of the pandemic.”

“People in their 50s and 60s have counted themselves out of the workplace in droves – and are experiencing age discrimination when they try to get back in."[1]

Early retirement may be enticing, but it certainly bears thinking about. Before acting, it is always a good idea to take financial advice and think carefully about the following factors:

• Do you know how much you’ll need to live comfortably in retirement?
• If so, do you have enough in your pension pot for the lifestyle you want?
• Do you have savings or any other source of income?
• Do you still have a mortgage or any other outstanding debt you are still liable for?
• Could working for just a few more years offer you valuable financial security?

Do you have access to all of your pensions?

Estimates suggest there is currently over £19bn sat in lost pension pots across the UK.[2] These are typically the result of people changing jobs or moving houses and then not keeping track of contributions made with previous employers. The good news, however, is that the government runs a free pension tracing service to help employees track down their lost pensions. So, if you’ve worked for a number of different employers down the years it might be worth checking to see if you can be reunited with a long-lost pension.

Signs of an early retirement reversal

Data from the Office for National Statistics shows that the “Great Unretirement” is in full flow. In a qualitative study adults aged between 50 to 70, 47% of those asked left work during COVID19 for retirement related reasons. Shockingly around 4 in 10 said they would return to paid work in the future.[3]

We are here to help

Whatever your goals for retirement, we’re here to help you get into the best possible financial position for later life. For further information or to discuss your particular circumstances, please get in touch with a member of our specialist Wealth Management team or your usual Azets advisor.

Azets Wealth Management is a trading name of Azets Wealth Management Limited, which is authorised and regulated by the Financial Conduct Authority. Company Number 05674020. Incorporated in England. Azets Wealth Management Limited is a subsidiary of Azets Holdings Limited.

[1] https://ageing-better.org.uk/news/hundreds-thousands-older-workers-remain-frozen-out-labour-market
[2] https://www.abi.org.uk/news/news-articles/2020/05/19.4-billion-of-pension-pots-unclaimed-just-because-of-house-moves/
[3]https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/economicinactivity/bulletins/earlyinsightsfromtheover50slifestylestudygreatbritain/1march2022