Previously, retirement was a time to take things more slowly and enjoy a more relaxed pace of life. Today it is something different entirely – it’s a time people look forward to for the freedom to travel, see family, and take up exciting hobbies without the interruption of work commitments. The concept of retirement has changed somewhat due to the increasing life expectancies of both men and women. Today, retiring from work isn’t a final step – instead, it’s merely a stepping stone towards a new, exhilarating chapter.
A gentleman enjoying a well deserved rest in his garden (image by Ben Mizen)
The Government reports that there are now more than 15,000 people aged over 100 years, and with the average man retiring at 64.6 years, and the average woman retiring at 62.3 years, this leaves plenty of time to enjoy the benefits that come with old age. It is, however, important to plan for retirement carefully, considering the options available, before reaching this important milestone. Tash Elwyn of Florida-based independent accountants Raymond James Associates reports that many retirees are completely unprepared for their later years, whether that be in terms of finances, socialising, or general lifestyle changes.
Interesting Facts About Retirement
In order to be prepared for retirement, it’s important to understand more about the retirement system in the UK, and about UK pensions. Here are a few interesting statistics that provide a glimpse into the retirement and pensions sectors across the country:
– Retirement Age is Rising
Due to longer life expectancies in the UK, the age of retirement has been steadily growing, and is expected to continue to rise. The Office of National Statistics shows that the average retirement age for men increased from 63.8 years to 64.6 years between 2004 and 2010, and for women the age rose from 61.2 years to 62.3 years for the same period. In 2014, the official retirement age was 65 years, which is when individuals could begin to draw a state pension, while workplace pensions are typically available from age 55, catering to those opting to take early retirement.
– Women Typically Receive Less than Men
Figures show that 80 percent of retired men draw the full amount of state pension, while just 46 percent of women have access to the same level of funds. While there are a number of different reasons why this may be the case, the most likely explanation, according to the This is Money website, is that women are more likely to have longer periods of unemployment or of part time working due to raising children which can affect eligibility for full amount state pension. To receive the full amount, individuals must have paid National Insurance Contributions for 30 years. This means that, in some cases, women may need to plan for retirement more thoroughly than their male counterparts in terms of finances.
– Few People Draw Workplace Pensions
Back in 2011, it was found that remarkably few workers were paying into a workplace pension scheme, with the intention to rely solely upon a state pension once the Government-defined pension aged had been reached. The Office of National Statistics found that just 8.2 million people paid into an occupational scheme, which was the lowest figure since the 1950s. To combat this issue, the Government introduced ‘automatic enrollment’ in 2012 which sees every worker who meets eligibility criteria automatically entered into a workplace pension scheme unless they actively opt out.
Survival kit for those about to retire (infographic by Acorn Stairlifts)
What to Expect
Retirement is an exciting time, but it’s important to remember that it’s not always easy to adjust to significant life events such as this, and that it may take time before an individual becomes accustomed to their new way of life. The Holmes and Rahe scale lists retirement as being the 10th most stressful life event that can occur. Here are some of the more unexpected aspects of retirement that many people experience:
– Social Changes
Consumer Reports Magazine claims that 19 percent of retirees are unprepared for changes within their social lives. Changes in relationships are inevitable when retiring, and studies have found that retirees often report less social support than their working counterparts. During retirement, socialisation becomes something that is experienced through the effort of making plans, whereas during the working years it is simply a byproduct of employment. Relationships with family members at home, such as a spouse, may also change due to a significant change in lifestyle. However, making the effort to remain social can ease the transition from working life to retirement, according to research conducted within this area.
– Frugal Living
Once again referencing Tash Elwyn of Raymond James Associates, he concludes that one of the biggest challenges that new retirees encounter is learning to live a more frugal lifestyle, as they ‘envision a life in retirement that is just as lavish as when they were employed’. Whether drawing a private or workplace pension, or living off state pension, funds are limited.
Those who believe that retirement is a time for slowing down are often those who have the greatest troubles in adjusting to this new chapter in their lives. Whether an individual’s retirement is naturally active or not, there should always be some sort of exercise plan incorporated into the new lifestyle. There is very much a Catch-22 situation in terms of retirement and relaxation – the more a person relaxes, the more their body slows down, as found in a study showing reduced blood flow in the brain of retirees who did not partake in any sort of physical activity. Even small amounts of exercise can help keep the brain, and the body, working optimally.
Most people look forward to retirement, making plans to do all the things they never had the time to do when they were employed. Unfortunately, not every person gets to tick every activity off their bucket list, as it’s reported that boredom strikes after just 10 months of retirement on average, with dwindling motivation preventing retirees from carrying out their plans. Periods of boredom and of poor motivation are to be expected during retirement – it’s completely normal, it’s part of the overall lifestyle adjustment, and it’s very rarely permanent.
– Government Support
Many people think that once they start drawing a pension, that there’s very little support available to them, but this isn’t true. In fact, the Government have set up a number of support systems for retirees, helping them to maintain healthy social contact, enhance their skills, and celebrate their lives. One such system is the DWP’s Digital Strategy, which aims to get older people using the web confidently as a way of keeping in touch with friends and family, checking their bank accounts, and making use of other online services. It’s reported that only 59 percent of the over 65 population use the web, so programmes such as this can be very beneficial.
At 55, individuals are eligible to start drawing a workplace pension that they have contributed to. In 2012, the Government introduced the ‘automatic enrolment’ scheme that made it a legal requirement for employers to sign eligible employees up for a workplace pension unless they opt out. The employee, the employer, and the Government are all required to contribute to a workplace pension through automatic enrolment. To be eligible, the employee must be based in the UK, be aged between 22 and the state pension age, and be earning more than £10,000 per annum. Workplace pensions are commonly drawn by those opting for early retirement who would be unable to draw a state pension until they reach the current state pension age.
Once state pension age has been reached, retirees can draw their state pension, which is either issued at the full rate, or at a reduced rate should the criteria for the full rate not be met. To be eligible for the full rate, individuals must have paid National Insurance Contributions for 30 years. However, those unemployed or unable to work due to sickness who were in receipt of National Insurance Credits which either amount to 30 years or can be combined with contributions to total 30 years will also be eligible for the higher rate. If eligibility for the higher rate is not met, either through unemployment without National Insurance Credits, or through periods of part-time employment, individuals have the option of receiving a lower rate of state pension, or topping their contributions up via Voluntary National Insurance Contributions. Spouses may also be eligible for a slightly higher rate if their husband or wife claims a full rate state pension.
If retiring and continuing to live in the UK, individuals can expect the rate of their state pension to increase on an annual basis. The amount of the increase is determined by either salary inflation, product inflation, or 2.5 percent, whichever is the higher amount. If, however, you opt to leave the UK on a permanent or semi-permanent basis, state pension values will be frozen.
Look after the pennies and the pounds will look after themselves (image by Tristan Martin)
Consumer Reports Magazine suggests that 57 percent of retirees aren’t fully prepared for their later years in terms of finances, while nearly half of Brits worry that their funds will dry up quicker than anticipated. Planning financially can make adjusting to retirement much more straightforward, and can help to ensure a more comfortable and enjoyable quality of life. While there are many areas that need to be looked at in terms of finances, there are two which take priority – the financial implications of taking early retirement, and the financial implications of health concerns.
– Early Retirement
Early retirement may seem like an excellent choice, but the Government are actively encouraging people to work for longer. With ongoing plans to keep rising the state pension age in relation to the higher life expectancies of men and women in the country, the Government hope to not only retain a healthy balance between workers and non-workers, but also help retirees get the most from their savings. Using a case study of ‘David’, the Government show that by contributing to a workplace pension from the ages of 25 to 65, he could accumulate around £128,000 for retirement. If, however, David retires early at just 55, his available funds would be more than one third smaller.
– Health Concerns
Following retirement, the likelihood of being diagnosed with an illness rises by 60 percent. This isn’t because retirement causes or encourages illness, but more that retirees have more free time and do not delay in seeing a doctor as much as an employed person might. Additionally, age-related issues such as reduced balance for example can increase the risk of physical injury. Care and residential homes in the UK can be very expensive, but through adequate financial planning – which not only includes personal savings but also research into grant eligibility – retirees can manage many conditions at home through the use of mobility aids or home alterations – a much more cost effective form of management, and one that allows for higher levels of independence.
Money Saving Tips & Tricks
There are many ways to make a pension stretch further, allowing retirees to maintain a comfortable quality of life while still enjoying some of the finer things. Here are some great ways to save money and take advantage of some of those great benefits of being part of the older generation:
– Budget Overview
One of the first things an individual should do following retirement is complete a budget report which shows all outgoings over a month long period. This includes groceries, drinks, days out, clothes, and anything else that the pension pays for. At the end of the month, go through this list and categorise every item into essential or luxury, working out which areas need to be cracked down on. Reducing monthly outgoings to live within means is one of the most effective ways of ensuring the retiree doesn’t outlive their pension.
– Providers & Schemes
With a little extra time to spare, retirees can sit down and take a good look at their household bills, paying particular attention to outgoings for phone lines, internet connections, gas, and electricity – it’s also worth looking at insurance policies, too. When working, many people opt to stay with the same provider year after year for ease, but this rarely offers the best rates. Financial website moneysavingexpert.com claims that by changing service providers, the average household could save as much as £200 per year.
– Free/Reduced Fees
Those over 65 years of age may be entitled to free or reduced activities, days out, and amenities. A TV licence for the elderly, for example, is offered at a reduced rate, while those living in England and Wales receive free bus transportation which can make socialising, visiting family, or travelling remarkably cost effective. Additionally, organisations such as the National Trust offer reduced fees for access to their properties to those of retirement age. These discounts can really make a huge difference to how far a state pension will stretch.
Expect the Unexpected
If there’s one piece of advice everyone should take with regard to retirement, it’s to expect the unexpected. The retirement conjured up in the imagination is very rarely the retirement of reality, but that doesn’t mean it’s not just as good. With some advanced financial planning, research into grant and pension eligibility, and an understanding of the best ways to adjust to this new life chapter, retirement can be the most exciting and enjoyable time of a person’s life.
This guest post was provided by Harold H. Rigby, an active health and lifestyle blogger.