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Planning Retirement Online

Early Retirement

senior couple reading paerPart 2 - Early Retirement Planning

 

Retiring early is a big decision to make and one that requires a lot of thought before it is made. Clearly, finance is a, probably the, major consideration; no-one would voluntarily retire early if they thought that they couldn't afford it.

 

Guide to 'Early Retirement' Content Links

However, within the finance calculations are a number of factors that people sometimes fail to consider when they are assessing their situation. These are:

  • The effect that inflation has on our income. Inflation eats away steadily at our money, particularly in times of low interest rates, although at the moment (2016/17) we have both low interest rates and low inflation. Obviously, both interest rates and inflation vary but, over the years, inflation can have a serious effect on our money and it must be taken into account when considering early retirement. We have to be sure that our money will last us for as long as we need it, taking into account what we want to do in retirement, our spending patterns, possible long-term care provision, our longevity (how long we think we're going to live for) maybe our legacy and the effects of inflation on our savings.
  • The effect of changes to income tax in the future. Clearly, it's impossible to guess what these might be but, when assessing our ability to retire early, we should err on the side of caution.
  • Future events. None of knows what will happen to us or our family tomorrow, let alone next year or next decade. Something might occur that requires us to pay out money, so we have to be able to afford a reserve, or contingency, fund to cope with emergencies. Remember, too, that things wear out and we will probably have to buy a new car, a new three-piece suite and lots of other things in our long retirement.
  • The fact that we might well be paying more for utilities, even leaving aside the effect of inflation. The chances are that, in retirement, we'll be spending more time at home and therefore we will need to heat and light the house for longer periods.

It's a very good idea to gain a complete understanding of our weekly or monthly budget whilst we're at work and then do our best to adapt it to what we think the situation will be after retirement. Once we have a feel for that, we can start to work out whether we can afford to retire early.

These are some of the purely financial considerations that we need to take into account. However, whether we can afford to retire will also depend on what we want to do in retirement, of course (see our Guide to 'What to do in Retirement'). If we want to take lots of expensive holidays, for example, we will need the funds to pay for them.

So the second stage of our early retirement planning must be to seriously consider all the things that we want to do in retirement and whether they are going to cost significant amounts of money. When we balance those things against our financial considerations we should then be in a good situation to decide whether early retirement is for us.

It's also useful to think about what might be the situation if things go wrong financially. In other words, we need a Plan B!

For example, we might ask ourselves what are the chances of finding work in retirement if we haven't planned to do any and we suddenly find that we need to. That will depend on many factors such as our skills, experience and so on. (Take a look at our Guide to Part Time Work for some help and ideas.) One in six new businesses in the UK are started by the over-50s, so is there any potential for starting a small business to earn some money? (Go to our section on Starting your own Business for more details.) We might consider our investments and think whether we should move a greater proportion of them to safe places (if they're not there already) rather than riskier ones.

So consider your own personal circumstances, anything that could affect them adversely and how to combat any ill effects.

Having taken all those steps we should then be in a good position to decide as objectively as possible whether early retirement is a realistic choice for us. It's very often an alluring prospect if there is, for example, a redundancy package on offer and sometimes that blinds us to the reality of a long retirement. So we need to be level-headed about the decision. Follow the steps above and you will be.

Now click on the links in the box above to read the rest of the Guide.

This Guide is written by Retirement Specialist Dave Sinclair supported by members of the LaterLife team. As well as writing on retirement matters Dave is Training Director at LaterLife and responsible for the content and continuous improvement of LaterLife's Retirement Courses..
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