Breaking the psychological barrier of retirement

We don’t underestimate how big the decision to retire is. For many, retirement is the opportunity to take up hobbies, travel and do things they have been dreaming about. A well-deserved break after their career. But, not everybody will be looking forward to the prospect.

Retirement has changed in recent years. Pension Freedoms has meant you have greater flexibility to access your pension from age 55 and many make use of this. The traditional retirement on a milestone birthday, after a significant proportion of your life with one employer, is a relic of the past. However, has the blurred line between employment and retirement complicated the psychological preparation necessary to retire?

Your identity

It goes without saying that for the vast majority of people their job makes up a big part of their identity. When you meet somebody new, ‘so what do you do?’ is often among the first questions asked. This shouldn’t come as a surprise; the time you spend with your colleagues over many years is likely to be much greater than the waking time you spend with your partner, friends or family.

Rightly or wrongly, job titles and the assumed income, social or environmental benefits that come with then are a socially accepted measure of success. When you retire, it can easily feel like you’ve lost part of your identity, even if you didn’t particularly enjoy your job.

Retirement presents a brand-new chapter in life, and, as with many big events, planning is key.

Being psychologically prepared

Your perception of retirement is a big thing. How you envisage spending your new social time with your hobbies and interest is key. Having unrealistic expectations will, of course, only lead to disappointment; if you don’t like golf now, why would you in your 60s or 70s?

The idea of retirement and retired people may also harbour negative connotations. Do you envisage a retired person as old, frail and lonely? Because if you do, it’s far from the truth. Your retirement can be as active and fulfilling as you make it.

Financial security

The biggest hurdle facing you will likely be ‘can I really afford it?’ To answer this question, we first need to understand three significant things;

  • Your aspirations
  • Retirement provisions
  • Health and longevity

Identifying your true aspirations in retirement and the level of income you’ll need to achieve is the first step in helping to secure your financial security. Your objectives should always form the basis of financial planning.

Your retirement provisions, or savings, aren’t limited to pension schemes. You may have Individual Savings Accounts (ISAs) or other investments intended for retirement. It’s not necessarily a tactic we would recommend, but more people are relying on their property as a source of retirement income. This can present issues as property is largely illiquid. Therefore, it can be difficult to turn into readily available cash without receiving less than its true market value. Still, there are options for considering downsizing or equity release policies.

You may have a lifetime of pensions from various employment and investments with different providers. Some might even be forgotten. We can help you make sense of your true financial position.

Your health will naturally play a significant role in your longevity. People are living longer lives, but this often means that the cost of care has to be considered in later years. At a time when retirement spending is typically falling, care costs can be incredibly expensive.

Furthermore, most people underestimate their lifespan. Research conducted by Retirement Advantage found that, on average, people aged between 50 and 64 expect to live to 82 years old. The reality is life expectancy for a male in that age bracket is 88 and for women, it’s 90. This would naturally leave them with an income shortfall.

Cashflow planning provides you with a visual representation of accumulating wealth and spending it in later life. It can take in to account all kinds of scenarios, such as downsizing, inheriting some wealth, or, in the worst case scenario, your partner or you dying. It will also take into account the effects of inflation and investment growth, projecting your wealth throughout your lifetime.

This will also help plan how to pass money on to loved ones when you do die, enabling Inheritance Tax Planning.

Often, once we’ve been through this exercise it becomes apparent people can retire much earlier than they anticipated! Cashflow planning, in expert hands, is a very powerful tool.

We’re here to help

At sovereign we are Chartered, independent financial planners. We have helped many people break the psychological barrier of retirement, and in some cases retire earlier than anticipated, by demonstrating to them first-hand how their financial retirement may look using cashflow planning. To talk about your retirement plans or any concerns you might have about leaving the working world behind, please get in touch with one of our expert financial planners.

What do our clients have to say?