Important information – please remember that the value of investments and the income from them can go down as well as up, so you may not get back what you invest.
How have your feelings towards work changed in the past year and a half?
If you’re closer to the end of your career than the start, the pandemic may have been a period of reflecting on work and wondering how much longer you want to continue. The shift towards more home working may have been a welcome change – or it may have reminded you that there’s a bit more to life than the nine-to-five.
If lockdown has sped up your plans to retire or change your work life, you’re not alone. Official figures released this year showed that those aged 50 years and over saw the highest overall increase in redundancies over the year to February 2021. In fact, the rate of redundancy for the over-50s more than doubled, rising from 4.3 to 9.7 per thousand – the highest redundancy rate across all age groups in the period.i
Those figures will include, of course, many older workers leaving work through no choice of their own – but it’s fair to assume many will have taken the opportunity to leave.
That’s been the anecdotal experience reported by Fidelity’s retirement service, which has seen greater numbers of people choosing to take up offers of redundancy, retiring early and seeking out advice to help them with the process. Others are seeking to access their pension savings in order cover their own expenses during the pandemic, or to help out family members.
If you’re wondering if now could the time to begin winding down the hours you work, or even to stop working altogether, it’s vital that you take stock of your retirement savings to work out the kind of retirement income you could be headed for.
How much retirement income will you get?
Fidelity’s retirement income estimator is an online tool which can give you a rough idea of the kind of income you’re in line for. You enter the age at which you hope to retire and the level of your savings at that stage to give you an idea of the kind of income you might expect. The figures it produces are based on assumptions which may or may not apply to you, so it’s important to understand how your circumstances could affect your projected level of income.
An element to consider when calculating your expected retirement income is the level of tax-free cash you want to take from your retirement savings. You are normally allowed to take as much as 25% of your pension pot tax-free is you wish from age 55 (although this will rise in the future to 57). There can be good reasons to take tax-free cash but bear in mind that the more you take to spend, the less will be left to generate an income. The retirement income estimator can show you the impact that taking more or less tax-free cash can have on your pot.
Finally, the retirement income estimator will also suggest a split between income generated by annuities, where a portion of your pension pot is used to buy a guaranteed income, and drawdown, where income is generated from invested money which can rise or fall in value – but which ultimately still belongs to you.
The right mix of income options will be specific to you, based on your circumstances such as the other sources of income you may be able to rely on. You can read more about the options available here.
How can you improve your chances?
If you fear you don’t quite have enough to retire right now, there’s still action you can take to help you retire sooner in the future. Fidelity’s MyPlan tool is an online calculator which allows you to enter details like your age, earnings and level of savings to work out the size of pension pot you might be on course to build in the future. The tool lets you tweak details like your retirement date, your monthly contributions and the level of risk you’re willing to take with investments to show you what effect this will have on your saving. Even if you can’t retire right now, you can still accelerate your plans.