If you’re anything like Tina, one of the stars of our Rewirement podcast, you’ll have been planning and saving for retirement for years. She and her husband started laying their later life foundations over 20 years ago, by buying a second home in Alicante. Now they own three properties out there, and split their time between Spain and the UK.
According to our recent research (1) £25k a year is the average income target for retirement for people over 50 and still working. But a global event like Covid-19 can disrupt even the best-laid plans. Our survey findings suggest the pandemic’s led to one in five people changing their retirement age. If Tina was still saving for her retirement, she might well have been one of them.
If your retirement plans have shifted, we can help you understand how spending a day reviewing them now, could be a useful way to get ‘back on track’ and look forward to the retirement you’ve been planning.
How the pandemic has changed our retirement plans
Why some of us have delayed our retirement
With more than 1.28 million over-50s on the furlough scheme until the end of January 2021, it’s no surprise that retirement plans have been impacted. While for some this meant pushing their expected retirement age back by as much as three years, for others it wasn’t the financial burden of the pandemic that changed their minds. Many people have enjoyed the flexibility of working from home, and don’t miss the daily commute. They’ve found a better work-life balance, so they’re very happy to stay in work for longer.
How some of us have taken early retirement
Covid-19 has led to many people retiring sooner than planned; in fact 58% of people retiring between March and October 2020 did so because of the pandemic. For some, the changes that the pandemic brought meant re-evaluating their plans, and many older workers are retiring sooner.
12% of pre-retired over-50s were able to save more each month as a result of the pandemic, making the affordability of retirement a realistic goal.
What’s happened to our income?
Has your household income gone down during the pandemic? You’re not alone. The Institute for Fiscal Studies (IFS) reports that 14% of people in their 50s have seen their income drop during the pandemic. Many of them have had to use their savings to make up the difference.
How much income will I need in retirement?
You can’t plan a journey until you know your destination. So we recommend thinking through how much income you’ll need to support your ideal retirement, then working backwards from that. The earlier you start thinking about it, the easier it will be to achieve the retirement you want. And if you have worked out how much you’re going to need, it’s always worth checking again. Your plans might have changed, or the pandemic might have changed them for you.
There are lots of things to consider when you’re thinking about the future. Will your mortgage be paid off? Will you need a car if you’re not travelling to work every day? What kind of holidays do you want to take? Spending time now, planning how much you might need to fund the lifestyle you want in retirement, will be time well spent.
What do I need to think about when planning my retirement income?
With lots of things to think about, it can feel overwhelming. Which is why we put together a simple online course with The Open University to help. ‘Retirement planning made easy’ is free, and breaks down all the areas you need to think about for a financially secure retirement. It will help you create that all-important realistic budget, understand what your retirement income will look like, and show you what you can do if the two don’t quite match up. It also looks at how divorce and bereavement can impact your pension.
Work out how much you need to save for retirement
Now you’ve worked out how much money you’re going to need, you need to make sure you save up enough to provide it. You’ll need to:
- Understand all your options
- Choose the right ones for you
Your main retirement savings options are:
- State pension. You’ll receive it if you’ve ever made National Insurance (NI) contributions. There are various schemes within it, depending on when you were born and whether you’re a man or a woman. Its maximum weekly payment is currently only £179.60, so you’ll probably need to top up your pension income somehow. The amount you will receive will depend on the amount of NI contributions you have made.
- Workplace and personal pensions. If you’re working for an organisation, you’ve probably already got a workplace pension. You and your employer will likely both pay into it, although there are different categories of entitlement. If you’re self-employed, you might well have a personal pension, with payments made to a firm that invests the money on your behalf. Once you’ve retired, there are several ways of taking money out of workplace or personal pensions.
- Investments. Investment takes time, money and effort, but it can make a real difference to your retirement. You could follow Tina into property investment, buying overseas if the local market is too costly. There are other options too, like the stock market. But always consult an expert before you part with any money.
Choosing the right age to retire
The pandemic has changed many people’s retirement plans. Some have brought their retirement date forward, while others now need to save for longer. Even deciding to keep the same retirement date needs some thought and research, to make sure it’s the right decision.
In short, it’s a choice you should make as carefully as possible.
1 Opinium survey of 2,160 UK over-50s in the UK who have not retired between 9 and 13 August 2021, 224 of whom are saving less towards retirement, compared to before the pandemic.