Early retirement comes with financial hit
● But those who finish work early more likely to have taken professional advice
More than half of Scots retiring this year will be doing so ea r l i e r t ha n ex pe c t e d – but will take a financial hit on their retirement income to do so.
S ome 58 p er cent of t hose nor th of the B order who are planning t o give up work i n 2017 are doing so earlier than th e i r pr o j e c t e d st a t e pe n - sion age or company pension sc h e me re t i r e me n t da t e , a study from Prudential found.
Many are willing to reduce the amount they will be paid in retirement to be able to do so – around £ 1,250 a year – according to the survey of 1,000 people intending to retire in 2017.
Those who are planning to work until t heir r et i r ement da t e e x p e c t t o r e t i r e o n a n i ncome wor th £ 18,900 each ye a r, co m p a r e d wi t h th e £ 17,6 5 0 ex pe c t e d by p e opl e who are retiring early.
Meanwhile, this year’s early retirees feel better prepared than those who are not stop - ping work early. Three- fifths of t hose t aking early r et ir e - ment said they are financially well- prepared, against 46 per cent of those working towards their retirement date.
Pe op l e who pl a n t o r e t i r e early are more likely to have sought professional financial advice and to have savings put by f or their retirement than those who plan to wait until th e i r re t i r e m e n t da t e , th e research found.
Th e pe n s i o n fr e e d o m s launched in 2015 have given the over- 55s much more flexi bilit y over how t hey access th e i r pe n s i o n ca s h . Ma n y people currently approaching retirement may also be relying to some extent on “gold plated” defined b enefit p ension schemes, which guarantee a certain level of income to people when they give up work.
Th e s e ha v e in c r e a s i n g l y been phased out in favour of defined contribution schemes, where the burden of risk as to how much retirement income so m e o n e en d s up wi t h i s placed on the pension saver. Exp er t s have warned t hose in their 30s and younger that they may eventually face the p ossibil it y of drawing t heir pension for the fi rst time i n their 70s.
And with many people now getting on the housing ladder la t e r i n l i f e , havi ng a mor t - gage still to pay off may pre - vent some from retiring early.
Vi n c e Sm i t h - H u g h e s , a retirement expert at Pruden- ti al, said many of this year’s re t i r ees wil l have b e nef it e d fr o m g e n e r o u s f i n a l s a l a r y schemes – something which only a “handful” of t hose i n future generations will have.
H e sa i d : “R e t i r e e s o f th e fu t u r e wh o ar e ho p i n g t o retire early will need to star t preparing well in advance, setting aside as much as they can afford as early as they can.”
H e ad d e d th a t th e r e wa s f ree guidance on offer f rom the Pensions Advisor y S er vice and the government’s Pension Wise service.