Retirement dates are out of date

If you have a pension plan, you will have chosen a “retirement date” when you joined the scheme, or you will have been allocated a “normal retirement date”.

If you visit a financial adviser to plan your retirement, one of the questions which they will ask is “when do you want to retire”. If you answer with a date or an age, you will be answering the question incorrectly. (Don’t worry, most financial advisers will expect you to respond to this question with an age or a date).

We are conditioned to expect to retire on a date or at an age. There are plenty of reasons for this – for example, our employers used to have fixed retirement ages, the state gives us a retirement age, and our parents’ retirements may have set expectations for us. And your financial adviser will probably have a box on a form or in a computer programme which they will need to fill in.

So, what sort of response should you give, if you are asked when you want to retire? Here are a few sensible choices:

  • “When I have enough money to do what I want without working.”
  • “When I don’t enjoy (or can’t stand!) going to work any more”
  • “When I’m not healthy enough to work”
  • “I’m sorry, I don’t really understand what you mean by retiring”

Now, these answers don’t lend themselves to SMART goals, but a good financial planner should be able to help you develop good financial objectives, depending on your reply. It should be fairly straightforward to reach conclusions based on the first three answers.

But what about the fourth answer? This is becoming an increasingly common answer to the question.  Retirement can be a vague concept, particularly if you aren’t in a traditional, employed role:

  • The self-employed often choose to move into retirement over a long period of time.
  • If your expenditure is funded in full, or in part, by rental income, retirement is very different. It’s common to reduce your involvement in the management of a property (perhaps appointing an agent to carry out some or all of the work required), but this tends to happen some years after conventional retirement age. Many property investors are loath to sell property, as a result of capital gains tax, and because it can be difficult to generate the same income from the net proceeds (after tax and expenses) of a property sale.
  • If you own (most of) a company, you can reduce your involvement, over time, but continue to pay yourself a dividend. This is a common approach in a family company. But it’s very rare for the founder of a business to suddenly take no further interest in the business they spent their working life building up.

Good retirement plans start by setting out what you mean by retirement, take account of what might prompt you to start the move into retirement and include information about how you will make the transition from full-time work to full-time retirement.

Philip Wise |

Managing Director and Chartered Financial Planner

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