Timing they say, is everything. But working out the right time to retire is a complex matter. NOEL WATSON is a financial planner based in Surrey who specialises in helping clients through that often difficult transition to retirement. In the first part of this series he explained how to write a retirement plan. This time he looks at how to identify when to call time on working life.
Noel, we often hear people say they enjoy retirement so much that they wish they’d finished work earlier. But others retire and then decide they did it too soon. How do you work out the right time to finish work?
Something I strongly recommend to clients is that they rehearse their retirement while they’re still working. I think you could argue that COVID has given people almost a “dry run” at retirement, especially during the lockdown periods. Human beings are very social animals, and for a lot of us, work revolves around the social element. So you get used to a certain level of social interaction with colleagues, but when work finishes, your days are going to be potentially empty unless you have activities that you can fill your time with. So I think a dry run is important because if you come to a hard stop, a hard retirement, and there’s nothing planned ahead for you, that can cause a bit of an emotional upheaval.
So how should you go about rehearsing your retirement?
I think it’s all well and good thinking about what your ideal day might look like. You might say, “I’ll get up in the morning and if it’s sunny outside, I’ll walk the dog, I’ll go for a coffee…” and so on. But the perfect day won’t be every day. So get a calendar and map out 365 days. How will you fill that time? Think about things like volunteering. How might you use your time to give something back? You certainly don’t want to be sitting at home potentially watching television all day long. The more you can think about what the future looks like and how you’ll fill those days, the better.
How precise does this planning need to be?
As retirement planners we half-joke that once a plan is finished, it’s out of date and inaccurate. I think you can make a robust plan and you can be very prudent with your planning, but you don’t know what life is going to throw at you. So what you need to think about are all the what-if scenarios. So say, for example, you build a lovely plan that has you both (if you’re in a relationship) surviving to 100 years old. If you get run over tomorrow, the day after retirement, well, your plan’s failed. What you’ve got to try and do is think about what might go wrong. I strongly believe, with a robust plan, you can deal with most of life’s eventualities.
What problems arise if you don’t prepare yourself properly for retirement?
If people finish work without practising retirement, if you like, it can be very, very easy to be lured back to your old role. That’s especially true if you’ve got work colleagues you got on well with, and they’re saying, “Oh, come back and join us; it’ll be just the same as before.” So I think, if you don’t practise, it’s almost “better the devil you know” and you can go back to work, and a year becomes two years, then three years. But we don’t know what’s around the corner, and those early retirement years are so precious. It’s best, I think, if you’ve got a robust plan, to finish work when it makes sense to do so. In other words, don’t let the years drag on and before you know it, those all-important years of early retirement years have gone.
What factors do you need to consider when deciding the right time to retire?
Again, it all depends on whether you have a financial plan in place that you have confidence in. If you do, the first question I ask people is, “Why not now? What are the blockers in place? Why not just say you’ll finish work now? For me, the ideal time is yesterday, but, if not yesterday, maybe tomorrow. Because you only get one life, and life is so short. The other thing to bear in mind is that you might not live as long as you might hope or expect. I see this, unfortunately, all the time, in my job. Some people just get a really unfortunate illness and their life is tragically cut short. It’s really, really sad.
So, ideally, you would argue, people should give up work if they can. But that’s not right for everyone, is it?
No, I don’t think it is. I think it’s all about keeping the brain sharp. It also depends on how you define work. Some people might say that work is a means to earn money, but for me, work is almost a way to keep the brain engaged. If you’re very fortunate and you’ve got a plan behind you, volunteering is something you might consider as unpaid work. But I think giving up work and retreating into your shell is almost certainly sub-optimal. For me, the perfect retirement has got to be a mix of leisure, keeping the brain sharp, and potentially giving back. It’s got to be a mixture of all three. Obviously everyone’s different, but it should be a combination of all of those things.
What about a “phased retirement” or “semi-retirement”? What are the options you can consider?
I think a sensible approach is, if you’ve been working for an employer for a long time, to go and have a chat with them and say, “Look, I don’t want to be working forever more, but I don’t want to leave you in the lurch and finish work tomorrow. Can we discuss a phased retirement?” So it could be going from five days a week to four or to three. Or it could be working on a consultancy basis. But I have to say, the feedback I get from some people is that a phased approach doesn’t automatically reduce the mental workload. If you’re doing three days a week, you might still be expected to squeeze five days of work into that time. So, in reality, it does’t always always pan out as people intend it to. But that would be my starting point.
How common is it for people to stop work entirely, and then decide they want to do some form of work after?
It’s more common than you’d think. It’s that fear of the empty day that makes people restless. My observation, though, is that if you can get over the first six months of retirement and start to fill your life up, the desire to go back to work reduces. It’s those first six months that are the challenge. Some people say, “I can’t bear to have another empty day. I need to get myself back into some kind of work.” So planning for that first six months is hugely important.
NOEL WATSON has written a book called Planning for Retirement. You can find out about it and order a copy here.
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