Revealed: The surprising reasons 6 million people retired earlier than planned

Retirement can sometimes be seen as a distant dream, especially while you are in the process of building up your pension pot.

However, it may not need to be as far off as you think. A 2022 survey by LV= explored how millions of UK retirees have been able to retire up to 5 years earlier than they had planned.

The LV= Wealth and Wellbeing Monitor recorded data from 4,000 nationally representative adults and results were extrapolated using population data from the Office for National Statistics to understand more about the reasons behind early retirement.

Even though stopping working sooner than planned can sound like a luxury, if you don’t have sufficient savings in place to support you it can be a very worrying time. Read on to learn the different reasons people took early retirement and how you can build a sufficient pension for your retirement, whenever you decide to take it.

The main reason for retiring early was simply because they could afford to

Almost one-third (31%) of the people who retired earlier than they anticipated said that they did so because they could afford to retire. Additionally, 27% of them said they did not want to work anymore.

Respondents were permitted to give multiple reasons, so there may be overlap between these two groups.

Being in a financial position to retire early usually requires very careful planning and saving throughout your working life. You will need to consider what your lifestyle will be in retirement so that you don’t use up your savings too quickly.

Additionally, it is important to note that you typically can’t access a pension until the age of 55, rising to 57 from 2028 and with further increases likely in the future.

If you plan to retire earlier than this, it is important to ensure you have sufficient savings that you can access until you can start to draw on your pension.

Forced early retirement can be a financial strain

While retiring early can be wonderful, if you need to retire before you are financially ready it can be stressful.

Not everyone who responded to the survey took early retirement on their own terms. 30% of retirees said they were not financially ready to retire when they did; this percentage increases to 37% for women who retired early.

In addition to the two answers mentioned previously, further reasons for taking early retirement were:

• Ill health or injury

• Stress or mental health

• Redundancy

• An individual had to care for a partner or parent who was in ill health.

Aside from the stress of ill health, redundancy or caring for a partner or parent, financial worries can build up when you stop working. Retiring early means you have less time to grow your wealth using compound returns or pension contributions.

Additionally, the earlier you retire, the longer your pension will need to last, generally speaking.

If you haven’t had enough time to build a sufficient pension pot, the prospect of running out of money can be very worrying. Speaking to a financial planner to understand the options available to you will be very helpful for easing your worries and helping you to plan for the entirety of your retirement.

3 ways to make sure you are financially ready for retirement

If you’re thinking about your options for retirement and want to make sure you build a sufficient pension to support you financially, here are three practical steps you can take.  

1.       Keep paying into your pension

As the cost of living crisis unfolds, many people have reduced or stopped their pension contributions in order to save money in the short term.

According to Money Marketing, half of businesses employing more than 500 people have reported that some of their employees have opted out of pension schemes since the start of the cost of living crisis. This can have a detrimental effect on your retirement savings, since you miss out on the power of compounding.

The Guardian reports that, for a 20-year-old paying £200 a month into their pension, pausing contributions for three years could result in a drop in value of their final pension fund of £28,000. 

2.       Use cashflow modelling to forecast your likely future income

Cashflow modelling is an invaluable tool when it comes to mapping out your retirement plan, because it can forecast exactly how much money you are likely to have at any given point in your life.

Your financial planner will input data such as your current savings and assets and your expected retirement date, adding assumptions such as the level of inflation over time. The software will then illustrate your expected wealth through retirement and signal any shortfalls.

Together with your planner, you can then create a plan that addresses the potential future shortfalls and gives a realistic date to work towards for retirement with the peace of mind that you will have enough to live on throughout your post-work years.

3.       Regularly consult with your financial planner

One of the most important parts of creating a financially secure future for yourself and your family is taking advice about how to use your wealth.

Your financial planner can help you to make the most of your income so that you save enough for retirement, as well as advise you about the most tax-efficient way to start taking an income from your pension savings when you retire.

At times when money worries are growing, having an objective party to look at your finances and advise you on the best course of action can be very helpful. This will stop you from making rash decisions based on emotion. They can also reassure you about possible outcomes based on their past experience.

Get in touch

If you’d like to know more about when you could retire and if you have enough savings to fund the lifestyle you’d like, we can help.

Email theteam@fortitudefp.co.uk or call us on 01327 354321.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.