What age can I retire?

The question “what age can I retire” is probably one of the biggest you’ll ever ask yourself. It is arguably the most fundamental question of any long-term savings plan, as retirement is normally the ultimate goal toward which most of us save.

That moment when you can say goodbye to work, the email chains, excel spreadsheets and meetings and make your time 100% your own.

While there is no one simple answer, there are some considerations you need to take into account to help you decide, no matter your current age or level of savings. To help you consider what is possible we’re going to focus on three factors:

• Your expected outgoings
• Your expected income
• What action should I take?

Your expected outgoings

Working out what level of expected outgoings you’re likely to have in retirement sets the benchmark for your lifestyle. Are you planning on hanging out at home, gardening and watching Countdown? Or are you hoping to set off on that luxury cruise you always dreamed of?

As people get older their spending tends to decrease. Average weekly spending between the ages of 65 and 74 is £506.90, much lower than the weekly average spend of £633.10 for people aged between 50 and 64, according to the most recent figures from the Office for National Statistics (ONS). Over the age of 75, though, this dips considerably to £336.10 average per week.

Immediately after they retire some people spend more on the holidays they always wanted to take, or big one-off purchases like a motorhome to tour the country. Over time though this spending diminishes as people slow down and settle into a retirement rhythm.

As people enter very old age costs can begin to rise again, sometimes substantially. This can come down to basic costs, such as having someone to clean the house, keep the garden tidy, or deliver groceries. But it can also be due to a more unfortunate aspect of retirement that many are often unwilling to discuss or even think about: when people enter the final years of their lives, the cost of caring for them begins to grow.

This can come in the form of a helping hand at home, right up to living full time in a retirement home. It is essential to think about how this might be paid for, especially if you don’t want to run down your assets to zero and would like to leave something behind for your loved ones.

Ultimately you need to be realistic about your expected expenses. Nice to haves like a round-the-world tour need to be considered alongside things like life expectancy. You may have enough to retire at 55, but you need to consider how long you may live and how much money you’ll need. The average man has to make their retirement savings last until the age of 84, while for a woman it is 87, according to the ONS. That's potentially relying on savings for over 30 years.

Your expected income

How much you are expecting to earn in retirement is dependent on a few different things. The typical ‘rule of thumb’ is to aim for a retirement income equal to two thirds of your working income. This is a bit of a generalisation and usually assumes the retiree has paid off any mortgages, as this often accounts for a big chunk of income.

It is important to consider where your retirement income will actually come from. You will most likely have specific retirement savings in the form of a workplace pension or final salary scheme, if you’re lucky enough. You may also have a private personal pension, or perhaps a SIPP (self-invested personal pension) where you have consolidated a number of other pensions.

You will also most likely have other savings in the form of a stocks and shares ISA, cash ISA or, if you are younger, a LISA (Lifetime ISA), that can help generate income.

The way you are invested with these products is important. If you are still saving, being invested in growth assets that help increase your portfolio size is a good idea. But once you shift to wanting to take an income, it will be essential to switch some of this capital into assets that generate income, such as dividends. You may also want to review your risk appetite to preserve your capital.

Another very common form of asset that most people hold is property. This can either be in the form of your main home, a buy-to-let (BTL) property, or a second home or holiday home. Thinking about how your property may feature in your income is important. Of the UK’s total £16 trillion wealth, some £5 trillion is held in property, according to the ONS. A not insignificant amount!

If you have a BTL property or holiday home to rent out, these can be great ways to earn income. As you get older you need to consider if you have the energy to look after the property yourself, or if you’d be willing to sacrifice some of that income to a management agency. There are also tax implications too as the government has made BTL investing less lucrative recently. On that basis, renting out a holiday home can make more financial sense, although there are still tax requirements to consider.

If you only have your main residence, you’ll need to think about whether it might be worth downsizing to unlock some of the capital stored in the property. It is all well and good having a valuable home, but that value can’t easily be accessed to help you maintain a retirement income.

Finally, it is important to consider your State Pension eligibility and how much of an impact that will have on your income. While the State Pension has been impacted by age changes to the eligibility, meaning most people in work now will have to be at least 67 before being able to access it, the State Pension still forms a crucial basis for many retiree’s later-life income. If you’re not sure how much State pension you can expect, you can use the government’s State Pension tool to get a forecast.

It is important to consider all these different potential income sources in aggregate, and to think about whether changing, combining or increasing the use of one or another is worth it in order to maximise what your income will ultimately be.

The Pension Calculator on the government backed Money Advice Service website is a handy way of giving you an idea of how much you’ll need and what income you can expect based on your chosen retirement age.

What action should I take?

Once you have considered how much you need to live on in retirement compared with how much you have available to you, you need to figure out if those two amounts will match up. This is often where people have to make compromises and the real question of what age you can retire at is decided.

If you have large amounts of savings and assets and can achieve everything you want, then the question is somewhat moot. You can retire when want to. However, many in this position in fact don’t retire completely but will typically enter a ‘glidepath’ of retirement, lowering their working hours or maybe taking a new role that is only part time.

Unfortunately, not everyone has this luxury. For those who feel their expected outgoings can’t be matched by their expected income, there are three choices to make:

• Save more
• Retire later
• Spend less

Saving more is easier and anyone in work now should do their utmost to squirrel away as much money as they can and invest it smartly to grow the value of their retirement savings. Maximising your position in the first place is the biggest guarantor of an easier retirement. However, for those further down the journey to retirement, it can be a daunting challenge if they feel they don’t yet have enough.

The second option is to retire later and work longer. This is already a common trend and some will say they feel fit and healthy and enjoy working enough to just keep going longer. By delaying your retirement you will have more time to put extra cash away and possibly require less money during your retirement.

Finally, perhaps the least satisfying choice, is to temper your spending plans during retirement. It might mean not taking the cruise you always wanted or spending less on dining out each month. You might even have to make bigger decisions like downsizing your property earlier than planned to free up more money. This is not always ideal, however, it is important to understand what money you have available for retirement to make those decisions as early as possible.

Ultimately if you wish to avoid retiring later, or lowering your lifestyle expectations, you have to make the most of your in-work income and savings’ growth potential. If you’re already investing rather than letting your money languish in cash savings, you’ve made a good start.

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