When can I retire?


When can I retire is a question many clients ask us, but it’s a difficult one to answer without knowing your full financial position.

For many people, the traditional concept of ‘retirement’ is changing. More and more we are seeing a reduced number of clients formally retiring completely, but rather choosing to reduce their working hours, or pick up more flexible roles such as consulting as and when they choose to. This is often for several reasons, which may include needing an ongoing income to supplement their lifestyle or for many, simply to keep busy.

Have you started planning for retirement yet?

If you are getting close to when you think you might like to retire, it’s likely you may have started to crunch some numbers. How much will my pension provide? How can I create an income? How long will that income last me? How much can I afford to spend without fear of running out of money?

It is important to be aware that not only is retirement a big financial change, it is also a huge emotional one too. We often see clients, after the initial excitement of all that freedom wears off, finding themselves struggling with a loss of routine and structure that work can provide. 

One of the benefits of a financial adviser is that not only will we help plan for your future financially, structuring your income and expenses, but we will also encourage you to think about how you would like to fill your time. It’s vital to think about your emotional wellbeing as well as financial wellbeing during this transition. It’s important to keep up with hobbies and explore new ones, should you want to, take that trip of a lifetime and be open to trying new things.

How much is enough?

Thinking about the future can be daunting. How much money will I need for the rest of my life? What is my magic number? 

When looking to the future, there are two ways you can look at your wealth:

  1. Are you simply looking to accumulate as much wealth as possible in the time you have?
  2. Are you working towards a specific figure?

Naturally, people lean towards wanting as much as possible, but many people simply have no idea what sum is even needed to sustain them throughout retirement. 

One of the questions we often get asked is, ‘how much is enough?’ Obviously, this figure will be different for everyone. In reality you can retire whenever you want, you just need enough wealth. The bigger question is, enough for what? ‘Enough’ will depend on when you see yourself retiring, the sort of lifestyle you want to have (both now and in the future), your health, age, financial commitments and many other factors.

That’s why it’s so important to work out what your magic number is by using tools such as cashflow modelling. Now this all sounds a little industry jargon but essentially what this will do is map out what your financial future could look like. You can look at different scenarios tailored to you, from the simple to the complex. 

For example, if you are looking to sell your business to fund your retirement, the value you receive could be detrimental to your planning. By modelling worst case scenarios such as the loss of a loved one, reduced pension income and market crashes, you can have a clearer idea of what you might expect.

Your plans can then be brought to life, allowing you to plan for other events such as children’s weddings, selling your home, taking that trip of a lifetime or sailing off into the sunset. It’s worth checking out our retirement calculator below to give you a clearer idea of where you are headed. 

We’ve created this calculator to help you to visualise what your retirement could look like and bring your plans to life.

By inputting some basic figures including your savings, investments and pension values, how much you currently save and how much you will need when you retire, based on prudent assumptions and your estimated life expectancy, we can help illustrate what the impact of drawing your desired income might have on your overall wealth. This could be the first step in starting to plan for the future. Although these results are simply an estimate, and are not guaranteed.

How can I take my income in retirement?

In reality, pensions only make up part of your overall wealth, so the nature of taking your income in retirement can often be more complicated than simply drawing from your pension. By taking advice you can ensure you are making the most of your tax allowances each year so you can start to draw your income in the most tax efficient way.

For many individuals, you will likely build up cash savings and other investments, such as ISAs, which can be used to support your pension income throughout retirement.

When it comes to pension income, there are several different options you can take. When you reach age 55, you will be able to access your retirement savings, even if you are still working. It is important to bear in mind that access to private pension provision is increasing to age 57 from 2028 unless your plan has a protected pension age allowing access from 55. This can be attractive to many but you need to think about how these funds are going to continue to last if you start to eat away at them too soon. 

There are three main ways to access a defined contribution pension

  1. Take it all as a cash lump sum. This will involve 25% free of tax, subject to an overall limit of £268,275 in most cases, with tax paid on the remaining 75%.
  2. Take the tax-free lump sum and income flexibly, as and when you need it. Again, there are tax consequences to be aware of here.
  3. Buy a secure income for life, known as an annuity.

Most pensions include 25% tax free, however some pensions include additional benefits, such as enhanced tax-free cash, so it is important that you are aware of these so that they are not lost if you make any changes to your plans.

What do I need to know?

The rules around pensions are fairly complex and are at risk of changing, especially if you have a while until you retire. It can be fairly easy to make a simple mistake and trigger a large tax bill while building up your pension wealth during your working life, especially for high earners and business owners.

This can be done by:

  • Exceeding the annual allowance
  • Exceeding the Tapered Annual Allowance

One of the biggest things to be aware of is the possible changes in legislation. Pension age is likely to be on the rise (State Pension age currently 66 rising to 67 between 2026-28 and the normal minimum pension age increasing from 55 to 57 from April 2028), particularly after the past few years, where huge debts need to be repaid due to the pandemic, along with an increasing retiring population who need to be funded by a shrinking working population. 

When it is time to draw benefits from your pension the amount of tax free cash you will be able to take will be measured against the new Lump Sum Allowance which was introduced in April 2024.

For most people this lifetime limit will be £268,275.

This does not mean you can take all of your pension pot as a tax free lump sum if it is worth less than £268,275 as there are rules in place that limit the tax free amount you can receive to either 25% of the value of the pension pot you are crystallising or £268,275 – whichever is the lower figure. 

What mistakes can I avoid with my pension?

To get the most out of your retirement savings you want to make the most of all of the available allowances on the way in and avoid any tax traps on the way out.

However here are some other mistakes that can greatly impact your retirement fund:

  • Delaying contributing to a pension
  • Opting out of workplace pensions
  • Making only the minimum contribution
  • Sticking with the default pension fund
  • Not checking pension performance
  • Losing track of old pensions 
  • Assuming state pension will be enough
  • Relying on an inheritance to fund your retirement

Planning for retirement can be a complex matter as there are lots of variable factors to consider. We aim to help give clarity on what your future looks like for you, what do you want to do with your time and your money? It is important to strike the balance between planning ahead for the future to allow you to live comfortably in retirement, whilst also ensuring you have enough money to live and enjoy life currently. 

If you would like to speak to an adviser to help plan for your future why not get in touch and arrange a free initial consultation today! 

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Please note: The Financial Conduct Authority does not regulate Cashflow Modelling.