Fighting the fear of early retirement
Statistics show that participation in the labour force by the 55+ age group is on the decline, partially due to the pandemic.
The figures indicate that many people over 55 have stopped looking for a job even if they are in good health and the right age to continue working. Those who don’t have a degree have been particularly hard hit and are being forced into retirement. There are others, however, who have been saving hard in the years leading up to the pandemic and who have just decided now is the right time to start enjoying their freedom.
But although you may have decided you’re in a position to retire early, how do you deal with the inevitable concerns?
What will you do with all your time? Will you miss the banter with your colleagues? How will it feel to no longer be part of the workforce? And most importantly, will your finances last long enough?
Tackling these issues head on will give you the confidence to pursue your dream or if you’ve been forced to take early retirement equip you with a strategy to approach it positively.
The financial side
The best way to handle any financial doubts is to crunch the numbers. Many of those who retire early, follow the FIRE principles (financial independence, retire early). To reassure yourself that you have the means to stop work, first of all you need to determine how much you have and how much you spend.
The FIRE community calculates whether they can retire early by assessing whether they have enough in their portfolio to cover their expenses by using the 4% rule. This works on the basis that if you withdraw 4% from your portfolio each year, then you should have enough money to last for 30 years or more. This is often changed to the 3% or 3.5% rule in light of current economic conditions and because many want to retire for 40 years.
You need to determine how much you spend each year (taking into account any debt repayments) Once you know that figure, simply multiply it by 25 if you’re basing it on the 4% rule. So if you spend £50,000 a year, then multiply that by 25 and you’ll need £1.25 million. If you’re expecting a longer retirement, use the 3.5% rule and multiply your ‘spend-figure’ by 30, giving you £1.5 million as your target.
By running this calculation you can see whether your portfolio will be able to fund your retirement and make any necessary adjustments.
Preparing yourself for retirement
Even if some people long to give up work, they can still have doubts about missing the structure, responsibility and sense of worth their job gives them. That’s why it’s important to really think about what retirement will look like for you, before you take the plunge.
Maybe go half-way. Take a part-time job. That way you would still have some income to cover your day-to-day expenses without tapping into your retirement savings. It would also have the advantage of allowing your portfolio more time to grow.
Consider doing some volunteer work or helping with a charity so you’re still getting out meeting people and following a routine. Set some goals for things you’ve always wanted to do. Write that book, visit new places and take up a new hobby.
Above all, sit back, relax and enjoy your retirement!