Erin Bisson from BWCI outlines some of the things to consider when deciding when to leave the world of work
CHOOSING when to retire is one of the biggest financial decisions you will ever make.
While the idea of finishing work earlier can be very appealing, the age at which you retire can have a significant impact on the amount of income you may be able to enjoy throughout retirement.
Retiring at 60: More time, but a longer retirement to fund
Many people like the idea of retiring at 60. It can provide you with the opportunity to enjoy retirement earlier, perhaps while you are fitter and have more freedom to travel or pursue other interests.
Financially, however, retiring earlier means your retirement savings need to stretch across a longer period.
You will also have had fewer years to contribute to a workplace or personal pension and
less time for your investments to grow.
If you are not yet entitled to your state pension, you would need to rely entirely on your private savings and pensions during the intervening years. As a result, retiring at 60 may mean accepting a lower level of annual income to ensure your money lasts.
Retiring at 65: Striking a balance
Waiting until 65 can make a noticeable difference to your financial position.
Those extra five years give your retirement savings more time to potentially grow and allow you to make further pension contributions while working. At the same time, the number of years over which your savings would need to support you is reduced.
For many people, retiring at 65 can make a meaningful difference to the level of retirement income compared with stopping work at 60, allowing you to potentially draw a higher income each year.
Alternatively, you could maintain the same planned income with a larger financial cushion for later life.
Waiting until state pension age
Continuing to work until state pension age can strengthen the position further. From this point, eligible individuals can claim their state pension alongside income from workplace or personal pensions. This additional income can reduce the amount that needs to be drawn from private savings, helping those savings last longer.
In Jersey, the state pension age depends on your date of birth. For most people it is between ages 65 and 67. There is a tool available at gov.je/Benefits/PensionsRetirement/Pages/HowPensionWorks.aspx#PensionAge to calculate your exact pension age when you enter your date of birth. If you’re a woman who started paying Social Security contributions before 1 January 1975, you may be able to claim your state pension when you are 60.
When should you retire?
There is no single “right” age. Your decision will depend on a range of factors, including how much you have saved, your desired lifestyle, other sources of income, health and your personal circumstances.
The important point is that retirement age and retirement income are closely connected. Comparing what your finances could look like if you retire at 60, 65 or state pension age can help you understand whether retiring earlier is affordable, or whether working a little longer could make a substantial difference to your financial security.
The value of investments can fall as well as rise. Pension and tax rules can change, and individual circumstances will differ.
