Planning for unexpected early retirement


Early retirement is something many people look forward to. But when it’s a decision that’s taken out of your hands, it can leave you in a financially vulnerable position.

Whether you plan to give up working while in your 50s, wait until State Pension age or even continue working past this point, it’s an important financial decision. As you save into your pension and build up other retirement provisions, you’ve probably invested some time into considering when you’d like to give up work and when it will be possible financially. However, it’s just as crucial that you plan for the unexpected.

Research from Just Group discovered 3.6 million people aged over 65 retired earlier than expected due to circumstances out of their control. Despite the very real risk of having to retire sooner than anticipated, just one in four is confident in their ability to support themselves for the rest of their lives. There are many reasons why someone may be forced into retirement, the top reasons uncovered by the research were:

  • Illness (25%)
  • Redundancy (21%)
  • Care demands (10%)

Stephen Lowe, Group Communications Director at Just Group, said: “Our research shows that for many the dream of early retirement may actually be more of a nightmare.

“Ill-health can strike at any time and becomes more likely the older we are, while redundancies are a difficult point in many people’s working career. Being forced to stop work is difficult for anyone but can be especially difficult for those over 50 – four in ten fail to find a new job within a year, a far higher ratio than their younger counterparts.”

Preparing for the unexpected

It’s important to realise that even the best-laid plans can go off course. However, there are things you can do to prepare for the possibility of retiring early.

Build up a savings pot

It’s advisable that you build up an emergency savings account, allowing you to cover essential bills should you be out of work. It’s recommended that this is between three and six months for the average employee. However, as you get closer to your retirement age, adding to this further can create a safety net should you need to give up work sooner.

Even if you retire when expected, an emergency fund can prove beneficial. For example, it gives you another source to draw an income from should you decide to access your pension flexibly. Often with this route, your pension remains invested and, as a result, can be affected by volatility in investment markets. Withdrawing when the market has experienced a dip could deplete savings faster, using an alternative in such circumstances is often effective.

Increase pension contributions

Pension Freedoms usually allow you to begin accessing your pension savings from the age of 55. This additional level of flexibility means that should you need to retire early, you’re more likely to be able to access your contributions than in the past. As a result, building up your pension through higher levels of contributions can provide an effective way to create a safety net.

The clear benefits of using a pension to build up a nest egg for potential early retirement is the additional contributions. Your deposits will typically benefit from employer contributions and tax relief too.

Remain engaged with your pension

Whether you decide to increase pension contributions or not, it’s important to remain engaged with your pension as you near retirement age. Understanding the level of income pensions will provide should you need to retire now and if everything goes according to plan should be a priority.

Regularly checking how your pension is performing and contributions adding up can give you increased confidence in your finances. Working with us, we’ll demonstrate how your pension could provide for you financially if accessed at different points, as well as projected returns. It’s a process that can help identify where more may need to be done to boost retirement provisions with your ideal lifestyle in mind.

Consider using a protection product

If you want to protect your income from future shocks, a protection product can help ease your mind. These insurance policies will pay out under defined circumstances, for instance, if you’re made redundant or are unable to work due to an illness. There is a range of products to choose from, allowing you to select the one that most closely matches your plans. For example, Critical Illness Cover will typically pay out a lump sum on diagnosis of certain illnesses, while Income Protection will usually pay out a portion of your salary until you’re able to return to work or retire.

To discuss how your current financial situation would be affected by early retirement, please get in touch. Our goal is to work with you to build a financial plan you can be confident in, even when the unexpected happens.