Years ago retirement was clearly understood by everyone, and we all meant the same thing; that you stopped work and collected your state pension (formerly called the Old Age Pension). Pension funds were not transferable between employers and schemes, and so the only way to guarantee a good pension was to stay with the same employer for about 40 years. Women retired at 60 (because they were expected to care for elderly parents, and anyway would probably marry someone a few years older than them). Men would retire at 65 and life expectancy was 70: “Three score years and 10”. Virtually nobody worked beyond retirement, although some might take on some voluntary work. Retirement was definitely a cliff-edge experience, both socially and financially, with most pensions being modest, and most married women being dependent upon their husband’s pension.
More recently there was a swing towards early retirement as the baby boomer generation paid off their mortgages, down-sized and started to take long-haul holidays. Pensions were more generous as the economy boomed; house prices rose steadily and life expectancy had increased. The phenomenon of early retirement was seen by many employers as a problem when teachers and doctors wanted to retire at 50 or 55 in order to ‘enjoy life’, but often returned to the workplace in a consultancy role. So from the 1990s rules on public sector early retirements started to change. At the same time there was a move to equalise men’s and women’s retirement ages.
At the present time more and more people expect to work past retirement, either for interest or for financial reasons. Life expectancy has increased to such an extent that the pensions industry is in crisis. The state pension age is increasing again, meaning that most people will have to work longer, often for a smaller pension. Improved health in the population means that individuals are no longer content to do nothing after finishing work.
So what does this mean for the future? With an increased life expectancy comes a greater need to prepare for many more years without a wage and without the structure of a paid job. Few of us can expect to retire on a generous pension from our employer, and the state pension is only just over £100 per week or £5500 per year. So it is really important to start making sensible financial plans at least 10-15 (probably 20) years prior to your anticipated retirement date in order to build up a pension pot that will provide you with the income you’d like to live on.
And do remember that university fees are likely to keep on rising, and that can place an extra burden on parents, often resulting in pressure to keep on working. But planning for retirement is not just about finance: What to do with all that free time? It might be spending more time with the family; indeed many grandparents are often roped into providing free childcare for their grandchildren, especially to help out with the increased childcare costs.
People forget that work is an inherently social activity for many, and so it is important to plan how to fill that gap. When I coach people in planning for their retirement I will ask them what they will miss about working, and the answer is invariably about the people, the team, the friendliness and sense of belonging. So their vague plans of taking the dog for long walks, reading, painting and other solitary pursuits are not going to replace the social interaction that occurs in the workplace.
Whatever a person wants to do in their retirement will probably need some form of plan. It may be to study for a new career or interest. It could be planning to set up a small business, or taking a part-time job. If the pension payments are not enough to live on then this is a sensible way to supplement the family income, and pay the mortgage if that’s not been dealt with. However some people don’t think it would be fair to take their pension and then take on a new job, especially when so many young people are seeking work. So some people take on voluntary work such as Citizens Advice, working in a charity shop, providing hospital transport, or helping children to learn to read – all of which are very rewarding.
I have met many people who tell me they are too young to think about planning for their retirement (some of them are in their early 50s!) and they like to just “go with the flow”. And yet when I talk to retired folk they often regret not having taken the steps to save enough to clear the mortgage, or get that extra qualification, or learn a language. Going with the flow means that people may simply drift towards their retirement and then it really does become a cliff-edge!
Even those people who are making plans are not quite sure whether to ease gently towards retirement by dropping a day or so per week and gradually reducing their hours, or to get to that cliff edge and just jump off, working the same hours right up until their final day. But again, a bit of planning and maybe just talking to the rest of the family will really help to make those decisions.
There have been lots of studies that show that planning for your retirement, and exercising some control over when and how you finish work, will make you happier and healthier when you do retire. So don’t get to retirement feeling anxious or unprepared; take some time now to plan and think about what your retirement will look like, and it will pay dividends in the long run.