Client questions

With final salary pension schemes all but extinct in the private sector (for new joiners at least), savings ratios at historically low levels and household incomes stretched, early retirement might seem an impossible dream for most people.

If we are all living longer than previous generations, are generally more materialistic so spend more, start work later in life because of higher education yet want to retire earlier, one doesn’t have to be a rocket scientist to realise that, for most people, the numbers simply won’t add up. It is becoming a stark reality that if you want a financially secure retirement you need to fund this yourself as the State Pension won’t stretch far and in, any case, won’t be much use for people who want to retire early.

Think about what retirement might mean for you. The concept of stopping work at 65 and playing golf all day might appeal to some but others desire more structure to their lives, particularly in the early years of retirement if they are fit and healthy. This is why many people take on part time or charity work. The phrase “retiring from the things I don’t like doing” springs to mind.

Rather than use the word “retirement”, we prefer to consider “financial independence”. What this really means is having enough money to be able to do all of the things you want to and make choices about whether you want to work or not. It may be, for example, that you would like to put enough money aside to be able to move to a 3 day week at 50.

Realistically, none of us have any idea what our circumstances (health, family etc) will be like in 10, 20 or 30 years’ time and so it is important to keep your planning flexible and try to take advantage of as many opportunities as possible along the way. Paying into pensions, ISAs, collective investments, employer share schemes and paying down the mortgage are all part of this equation.

Most people don’t spend enough time thinking about what they want out of life. So, if the dream is to retire early, try to add a bit more substance to this. What do you want the journey between now and retirement to look like? If having children is part of the journey, for example, you’re going to need significantly more money than if you don’t want children and if you want to privately educate them, playing golf all day at 50 could be unlikely! If you want to own your “dream house”, this is going to take a huge chunk out of your future earnings so think carefully about how important this is to you. Does the big house or the school fees or the holiday property mean that you have to push back your retirement age a bit and are you comfortable with this?

Ask yourself the question “what is important to me about money?”

Evolve - December 2009