Achieving financial independence in retirement is hard, but for those who lose their jobs just before they cross the finish line to retirement, it may now seem out of reach.
Losing or leaving your job in your fifties and beyond creates certain challenges. Stopping work or retiring sooner than anticipated can raise fear of the unknown. Taking time to think about what to do next will help you develop a solid plan for the next phase of life.
If you find yourself facing a choice of voluntary redundancy [which avoids employers making compulsory redundancies] or early retirement, it’s important to weigh the pros and cons before making a decision.
Is voluntary redundancy an affordable option?
Voluntary redundancy may seem like a great idea. It’s a lump-sum payout, usually bigger than a normal redundancy, but it’s important to ascertain how much money you would have to live on. Before you confirm your redundancy settlement, you need to find out exactly how much you’re going to receive from your employer based on years of service. Then work out your expenses to determine what’s needed each month to cover your bills and living expenses.
If you’re keen to move to a new job, change careers, or even start your own business, taking voluntary redundancy could be a good first step. Be sure to research the job market and be realistic about how long you can last without a regular income.
How about early retirement?
Early retirement can be an attractive option but there are downsides which include:
- No redundancy pay.
- A smaller pension.
- The earliest you can start receiving a workplace pension is age 55.
- As long as you are still working, you are not able to receive a pension from your workplace until age 65.
When considering retiring early, it’s easy to be swayed by thoughts of frequent travel or more family time. Be sure to keep a level head and to consider what you will need to live comfortably. You may wish to work part-time or reduce your hours.
As life expectancy increases, the average time spent in retirement is nearly 20 years and your income is likely to be more complicated as it may come from more than one source, including your savings and a part-time job.
The first step, then, is to add it all up:
- Ask your pension plan provider for an illustration of what you could receive as an early pension benefit.
- Get a pension forecast from any other pension providers (such as a personal pension or a previous employer) if you intend to start those early as well.
- Check whether any of these plans have built-in increases each year. You may wish to delay claiming some pensions and save extra.
Talk to a financial adviser before making any major decisions. Retirement planning is not easy and it’s important to understand your pension, your income sources and how to protect your assets.