Planning to retire soon? Here are 3 key questions to ask yourself before you do

It’s not uncommon to have a specific year in mind for when you want to retire. For many, this will be when they reach the State Pension Age (which is 66 in 2024/25), while others might aim to retire a decade earlier or much later, depending on their personal and financial circumstances.

If you envision stepping away from work soon, chances are you’ve already put thought into your plans. However, it’s important to ensure you’ve accounted for all the key considerations before making such a significant life transition.

While there are multiple elements to think about and priorities to balance, they can generally be reduced to three simple questions:

• How much income will you need in retirement?

• How much do you have in your retirement fund?

• How is your physical and mental health?

So, whether you’re planning to retire this year or at a later date, taking the time to address these important questions can help you make the most of your retirement. Read on to find out more.

1. How much income will you need in retirement?

Perhaps the most important financial consideration of your retirement is how much income you will need.

This is the question that determines when you will be able to retire and the kind of lifestyle and goals you can achieve when you do.

You can base your projected retirement income needs on your current expenditure and how it might change once you are no longer working.

Start by reviewing your current budget to identify essential expenses such as mortgage repayments, bills, groceries, and insurance. Be sure to factor in any possible future changes to such outgoings. For example, you might have paid off your mortgage by the time you retire.

Then, consider non-essential spending for things like travel, hobbies, and entertainment. Depending on your plans, these expenses might increase in retirement as you will have more free time and may have big expenditures lined up, such as trips abroad.

You should also account for potential future expenses that may not currently be on your radar. These could include the cost of long-term care for yourself or your partner, or financial support for a new grandchild, such as contributing to their education or setting aside funds for their first home.

A financial planner can help you throughout this process by using cashflow modelling to provide a clear picture of your financial future.

By factoring in your current outgoings and potential significant expenses, they can help you map out your future financial needs, ensuring you’re well-prepared for both expected and unexpected costs.

2. How much do you have in your retirement fund?

Once you have determined how much you are likely to need in retirement, you can then see how it aligns with how much you have in your pension and other potential income streams.

Shockingly, a report in Standard Life found that 1 in 4 people over 55 have never checked their pension fund, and have no idea how much their pension is worth.

Reviewing your pension pot’s value and projecting how much it could provide can help determine whether it is sufficient for your desired retirement lifestyle.

Of course, this requires knowing how long your pension will need to last, which is effectively impossible with a defined contribution (DC) pension as there’s no way of accurately predicting how long you will live. However, again, cashflow modelling can give you an idea of how far your fund will stretch based on a range of factors, including life expectancy, inflation, and investment growth.

You may also want to ensure you have made enough National Insurance contributions (NICs) to secure the full State Pension, as this can provide a useful top-up for even the most ample retirement funds.

While your pension is likely to be the cornerstone of your income, it’s a good idea to also consider other sources, such as investments, savings, and rental properties. 

Once you know how much you will need in retirement and whether your current fund is sufficient, you can decide if now or your projected retirement date is the right time for you.

3. How is your physical and mental health?

The final factors to consider before retiring are your mental and physical health and how they may influence your retirement lifestyle.

Leaving work often brings significant changes to your daily routine, social interactions, and sense of purpose. So, ensuring you are mentally prepared for this transition is just as important as financial readiness.

It’s a good idea to take some time to reflect on how you plan to stay engaged, whether through hobbies, volunteering, travelling, or spending time with family and friends.

Equally, your physical health plays an important role in your retirement experience.

You may want to consider whether your current health allows you to pursue your desired activities or whether you may need to make adjustments.

For example, you might have always planned a trip around the world but may no longer be able to travel with the same ease as you once did. To ensure you are still able to achieve your goal, perhaps this means you go on  a cruise instead, which could be considerably more (or less) expensive than your original plan.

Or if you’re in good physical health, you may want to push back your retirement date by a year or two so you can reap the benefits of staying at work.

By addressing both your mental and physical health before leaving the workplace, you can set the stage for a fulfilling and enjoyable retirement.

Get in touch

A financial planner can work with you to map out your projected retirement expenses and see how they align with your current fund. They can use cashflow modelling to create a detailed picture of your financial future, taking into account known factors such as your savings and investments, and unknown variables such as inflation and life expectancy.

To speak to a financial planner, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.