Retirement is often seen as a financial issue. However, this underplays the importance of many other elements, including working out what retirement means to you, when and where you want to retire, and your goals for retirement. In reality, it is more accurate to say that retirement should be both seen and treated as a major life transition.

What does this mean in practice? It means that retirement needs careful planning. You can’t just stop work and expect to thrive after that. This means financial planning—but you also need to consider other aspects and put plans into place in advance. From timing through location to what you plan to do with yourself every day, this page explains more.

What is Retirement?

Retirement is defined as the act of stopping working, usually because of age, or the period in life following this act.

In other words, it starts at the point at which you stop working, or step away from employment or self-employment. This might be because you have reached a particular age (for example, the age at which you can claim your pension), or because of ill-health or other reasons. The period of life following this point is also known as retirement.

What Age Do Most People Retire?

There is no defined age for retirement, or indeed ‘most people’ when it comes to this life stage.

Many people decide when to retire by when they can claim their pension, either a state pension or one from employment. However, others may find that their retirement age is dictated by an inability to continue to work because of ill-health. Still more may choose to continue to work despite receiving some pension benefits, as a way to supplement that income. Others, unfortunately, may find that they are not in a position to retire because of the need for some income on an ongoing basis.

The UK Office for National Statistics states that the majority of adults in the UK expect to retire somewhere between the ages of 65 and 69. However, that does not mean that they manage this.

In other words, retirement is a personal decision, but often dictated by circumstances beyond individual control.

What Models of Retirement Exist?

Just as there are different reasons for retiring, or not retiring, it follows that there are different models of retirement.

These include:

• Full retirement. You stop work altogether and claim all your pension entitlements as soon as you can. Precisely what you can claim will depend on your personal circumstances.

• Phased retirement. You might choose to step away from full-time employment, but perhaps work part-time, or take on some gig work, or do some voluntary work for the time being. To supplement your income, you might draw down some of your pension benefits—or you might save those for full retirement and live on your casual or part-time earnings.

• A portfolio career. Portfolio working is where you divide your time and skills between several different tasks, projects or even careers. You might step down from formal employment, say, but work as a consultant, or take on some non-executive directorships. You might also claim some pension payments, such as an employment pension or state pension, but leave others, such as a personal pension, to continue to mature until a later date.

The key in deciding what model to follow is what suits you personally: your financial situation, but also your preferences for how you work. Some people prefer to reduce their working hours gradually, whereas others just want—or need—to stop immediately.

Do I Need to Plan for Retirement?

There is a short and simple answer to this: yes.

Our page on Personal Development Planning explains the importance of planning your personal development. It makes clear that if you don’t know what you want to achieve—that is, you are not clear on your personal goals and objectives—it is much harder to get where you want to be in life. You don’t know whether the opportunities offered to you will take you in a positive direction. More importantly, you don’t know whether you are doing things that will help you to move towards a place where you will be contented in future.

The same applies to retirement.

Yes, of course you can ignore all planning. You can simply keep working until you can claim your state or any employment or personal pension that you have accrued. However, the reality is that if you have not planned ahead, it is possible that your pension entitlement may not be sufficient to stop working at any stage.

In other words, if you think that you might want to retire at any stage, it is wise to plan ahead to give yourself that option. Not planning may mean that the option is taken away.

What is the First Step in Planning for Retirement?

Planning for retirement is similar to any other planning, including planning your personal development, and planning any other project.

The first step is to decide on your goals and objectives.

Our page on Setting Personal Goals explains that there is a strong correlation between setting goals, self-motivation and achieving your goals. In other words, it is important to set goals that motivate you, and that take you where you want to be in life.

Take time to think—and talk to your partner if you have one—about what you want from your retirement. Do you want to live quietly near your family, and enjoy your hobbies? Do you want to travel? Do you want to move somewhere else, away from where you may have lived for a long time, to pursue other interests? What will you do each day?

It is important to understand your (shared) goals and priorities, because that dictates many of your actions.

For example, if you want to travel, are you going to work abroad, or just take holidays? Do you plan to sell your house or flat (if you own one) and perhaps buy a camper van or caravan in which you will live for some time? These are important decisions that have serious implications.

What Else Should I Consider When Planning for Retirement?

Apart from understanding your goals and objectives, there are two main areas that you should consider when planning for retirement: your financial situation and your timeline.

Your financial situation is, in project management terms, your budget.

You need to understand what money you will have coming in from your pension(s) each month or year. This will then show you what outgoings you can afford—and therefore how you need to tailor your plans.

For example, it is worth doing some work to understand exactly what you spend each month in your current house, under current circumstances. You can then see whether that will remain affordable when you are drawing down from your pension—or possibly, how long you will be able to draw on your pension pot before you run out of money.

There is more about this in our page on Understanding Pensions.

The second area to consider is your timeline.

This starts with your goals, and particularly when you want to retire. However, it then has to take in a dose of reality and look at what is achievable with your financial situation.

The key is to find the right combination of time and place to fit your goals, budget and priorities.

What are Some Common Mistakes and Misconceptions about Planning for Retirement?

There are a number of common mistakes and misconceptions that people make when planning for retirement. These can have significant effects on retirement ability, as well as ambition.

They include:

• Seeing retirement planning as an issue for ‘old people’.

  This could not be more wrong.

  Retirement planning needs to start as early as possible, because delays can seriously limit your options. That does not mean that you should abandon all idea of planning because you have left it ‘too late’—but you do need to understand the implications of delaying further, especially financially.

• Assuming that a state pension will be sufficient for your needs.

  This is not in any way a reliable assumption.

  In countries that have a state pension, it is generally viewed as a starting point for financial provision for retirement. State pensions are not usually very large, even if you have the maximum entitlement. They may be enough to live on—but not if you are somewhere with a high cost of living. It is worth checking your pension entitlement, as this is an essential starting point for decisions.

• Assuming you’ll have to stop work at a defined pension age.

  This bears repeating: there is no defined age at which you have to stop work in most countries or most jobs.

  Some jobs have upper limits on employment (for example, in the UK, judges have to retire at the age of 75), but many do not. You can therefore continue working even while claiming pension benefits—which could be useful if you want to supplement your pension but not work full-time for the rest of your life.

• Assuming you won’t live long after retirement.

  This is the ultimate in negative thinking: making the assumption that there is no point in saving for retirement, because you will probably die young anyway. Murphy’s Law says that under those circumstances, you will live a long life, and have to continue working for many years, possibly despite ill-health.

  In fact, the UK’s National Office for Statistics says that most people expect to retire between the ages of 65 and 69, and average life expectancy is now over 80 years old. It follows that you can reasonably expect to need your financial provision for retirement to last around 20 years.

• Assuming that the value of your house will fund your retirement.

  If you are in the fortunate position of having been able to buy a property, it is not wholly unreasonable to see that as a way of funding your retirement.

  However, its use comes with caveats. The first, and most important, is that you will need to sell it and move somewhere else—and that has both time and tax implications. Buying a new property means paying property taxes, and renting instead means a constant need for money. You might plan to use equity release—but that has implications for your heirs and your estate, as well as for you in the meantime.

  You should also consider that it can take a while to sell a house, and you might not have time to wait for the money to come in. Equally, property prices can both rise and fall, and you may not realise as much as you were expecting.

• Not getting professional advice about financial and other planning for retirement.

  It is always worth seeking professional—or at least impartial—advice about retirement planning.

  Government websites offer accurate and impartial advice and tools such as money planners. These can be a useful source of information about what you can expect and how to plan ahead. However, it may also be worth talking to a professional such as an independent financial adviser, who will be able to show you what options are open to you.

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A Final Thought

Planning for retirement may sound like something you can defer, but in reality, it is best addressed as early as possible. That said, it is never too late to look at your options.

The key is to start as soon as possible, be clear about your current position, and be realistic in your planning.

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