Why retiring early could be an expensive mistake

Wendy Ray has applied for more than 100 jobs since March but has yet to receive a single offer.

Having spent 12 years at a manufacturing firm, the 64-year-old quit her role after tiring of the 35-mile commute and long hours spent at her desk.

Wendy had hoped to find another position locally but, after four months of fruitless job hunting, she feels she is being pushed into early retirement.

She is not alone. More than a quarter of a million people in their 50s and 60s have left the workforce since the beginning of the pandemic, according to figures from the Institute for Fiscal Studies (IFS).

Early retirement: More than a quarter of a million people in their 50s and 60s have left the workforce since the beginning of the pandemic

It is a stark reversal of a decades-long trend which had seen increasing numbers of over-50s in employment.

Many cite poor health, discrimination and a post-pandemic reality check as their reasons for leaving the workplace prematurely. But experts warn that an early exit will mean a longer – and potentially poorer – retirement.

The state pension age has already edged up, the cost of living is soaring and plunging stock markets are a major blow to those with workplace pensions and investments.

There are also growing concerns that retirement pension pots could run dry too soon. Certainly, money is a worry for Wendy, from Edgmond, Shropshire.

She is one of millions of women hit by the Government’s decision to hike the female state pension age to 66.

The change, which was phased in over ten years for women born between 1950 and 1955, means she will not receive her state pension until December 2023.

Like many women of her generation, Wendy only found in recent years that this would be the case. With no job prospects, she is reliant on a private pension income of £498 a month, topped up with £600 from her savings account.

She says: ‘It is soul-destroying because I am not one of these people who doesn’t want to work. I don’t want to end up with no savings left.’

‘Pandemic made me realise life’s too short to do 9-to-5’ 

Publicist Jennifer Nash, 53, has made plans to leave her nine-to-five job when she reaches 55 to spend more time with her family — and she is not deterred by a lack of pension savings.

She says the pandemic made her realise that ‘life is too short’.

Jennifer, who moved to the UK from Zambia 12 years ago, was not able to return to East Africa to visit her mother, who suffers with diabetes, due to travel restrictions during lockdown. ‘I need to retire so I can spend more time with my mum,’ she says.

'life is too short': Jennifer Nash is planning to quit her day job to spend more time with her mother

‘life is too short’: Jennifer Nash is planning to quit her day job to spend more time with her mother

The grandmother of three, who lives with her husband in Gerrards Cross, Bucks, earns a yearly salary of around £50,000. 

When she retires, she plans to do charity work. Last year, she set up the Global Ignite Vision Action (GIVA), an award for female entrepreneurs.

Jennifer is putting her faith into growing her business to sustain her retirement as she hasn’t saved into a pension.

Jumping ship or pushed out to early retirement?

Almost two-thirds of 50 to 70-year-olds who left or lost their jobs since the start of the pandemic dropped out of the workforce sooner than anticipated, figures reveal.

The Office for National Statistics (ONS) found the issue affected 63 per cent of people in this age group who stopped working.

According to the ONS research, published in March, 13 per cent of people left work because of illness or disability, while 15 per cent cited Covid as the reason.

But other older employees feel they are being squeezed out of the workforce and are finding it difficult to get rehired if they leave their current job.

Jack Jones, pensions officer at the Trades Union Congress, says: ‘Quite a lot of people who are saying they have retired have done so because they found it too difficult to stay in work, rather than it being a considered decision.

‘A lot of these people have gone through the lengthy process of applying for however many vacancies and not even got an interview, so they have given up and say they are retired.’

Luke Price, senior evidence manager at the Centre for Ageing Better, adds: ‘Many older workers are leaving the job market because there is a shortage of employers creating jobs with sufficient flexibility to attract them.’

Among those who have left work but would consider returning, the majority — 69 per cent — would like to do so on a part-time basis. The availability of flexible working was also a key consideration for job-seekers in later life.

Mr Jones also argues that there needs to be greater focus on helping middle-aged and older workers in manual labour roles to retrain.

This would help to ensure that people are not forced out of the workforce because they are no longer able to carry out physically demanding jobs later in life.

Concerns that early-retirees pensions will run out

People who give up work early won’t always have the funds required for an extended retirement, it is feared. The average life expectancy today in the UK is 79 for men and 83 for women, according to the ONS.

So anyone retiring at 50 will need enough money set aside to live comfortably for 30 years or more.

A retirement income of £33,000 a year will demand a pension pot worth around £690,000 if it is going to last you three decades, according to calculations by investment firm AJ Bell.

Yet a typical employee approaching state pension age has just £91,000 set aside, which drops to a paltry £16,000 among the self-employed, according to the ONS.

Retiring early also means that workers will miss out on the chance to give their pension pots a further boost.

Research by insurance company Canada Life shows that someone earning £25,000 who had paid 8 per cent of their earnings into a pension between the ages of 20 and 55 could build a fund of around £117,468.

Yet if they continued to save until they were 67, their pension would be 59 per cent bigger at £186,262 thanks, in large part, to the magic of compound interest.

Meanwhile, a gap is forming between when people give up work and when they become eligible for the state pension, which is worth £9,638 a year.

Currently, the state pension age is 66 for men and women, but that is set to rise to 67 between 2026 and 2028. And, as Money Mail reported last month, ministers are considering accelerating plans to increase the age to 68.

While it may seem like a small change, research shows that tweaks to the state pension age can have disastrous consequences for older workers.

Poverty rates among 65-year-olds doubled after the state pension age increased from 65 to 66, according to the IFS.

The issue is compounded for those who are dependent on the state pension as their main income in retirement, and almost a third of people do not expect to have an income beyond what the state pension provides, according to a recent ONS report.

Auto-enrolment, introduced in 2012, means both employees and employers must pay into a workplace pension.

The minimum contribution is 8 per cent of their earnings, with employees paying in 5 per cent (including 1 per cent tax relief) and employers contributing 3 per cent.

But research from B&CE, provider of workplace scheme The People’s Pension, found that while around 7.4 million pension savers make the minimum employee contribution, just 7 per cent understood that this would fund only a basic retirement. 

Even with the state pension on top, there would not be enough money coming in every month to afford to run a car and limited cash for leisure, food and drink.

The cost-of-living squeeze has left retirees reliant on fixed incomes which are under increasing pressure.

In fact, more than 116,000 pensioners are already considering a return to work to help pay their bills after finding their pension does not bring in enough money to cover their living costs, according to analysis by Rest Less, an online community for the over-50s.

Saving for financial independence and retiring early

Financial independence and retiring early sounds great, but could you sacrifice enough of your spending to get there? 

The FIRE (financial independence retire early) movement involves living a frugal live, saving as much of your income as possible – 50 per cent or more – and investing to build a pot to retire early on. 

Could you do this and would the This is Money podcast’s Georgie Frost, Lee Boyce and Simon Lambert be able to stomach the hardcore budgeting and saving it requires? 

In the podcast above they discuss that and in the special bonus episode below, Simon speaks to Barney Whiter, aka The Escape Artist, who explains how he reached financial independence. 

 Press play to listen to the episode on the player above, or listen (and please subscribe and review us if you like the podcast) at Apple Podcasts,  Audioboom and Spotify or visit our This is Money Podcast page.   

When can you access your pension savings? 

Fears are also growing that many people are being forced to dip into their retirement pots early.

Rules vary, but workplace and personal pensions can usually be accessed at the age of 55.

Pensions freedom legislation, which was introduced in 2015, allows savers free rein over their retirement cash.

Between April 2020 and March 2021, nearly 600,000 people accessed their pension for the first time, according to the Financial Conduct Authority (FCA).

This compares with 530,000 pensioners between April 2016 and March 2017.

‘Quite a large proportion of those are people with small pots of £10,000 or less, and they are mostly taking the whole amount in cash,’ says Mr Jones, from the TUC.

‘It could be that they have another, larger pot elsewhere. But it does suggest that there are people in their early 60s who are being forced to take the money in order to make ends meet now.’

There are also far fewer retiring workers taking out annuities. These will provide a guaranteed income for life and help to reduce the risk of running out of money too soon.

Between April 2020 and March 2021, the number of people buying an annuity declined by 13 per cent to 60,383, according to the FCA. 

However, annuity rates have rebounded and recently hit an eight-year high, which could increase demand.

Tom Selby, from AJ Bell, says: ‘You could use an annuity to cover your fixed costs and keep the rest of your fund invested.’

Anyone wishing to access their defined contribution pension pots could also be slapped with huge tax bills if they are not careful.

Any hasty decisions could impact other benefits you might receive, such as Universal Credit.

Kelly Sizer, senior technical manager for Low Incomes Tax Reform Group, says: ‘We urge people not to rush into making decisions about pension withdrawals and to plan ahead where possible.

‘They might pay less tax on money from pension funds if it is taken in stages, spread out over a number of tax years, or withdrawn after they have stopped work.’

Pension credit deadline nears


Retirees are being urged to put in a claim for pension credit to avoid missing out on the £650 of extra financial support this year.

Pensioners have until August 18 to apply in order to qualify for the government’s new cost of living payment.

This benefit, which was announced as part of a package to help households in May, will be made up of two lumps sums.

Pensioners have until August 18 to apply in order to qualify for the government’s new cost of living payment

Pensioners have until August 18 to apply in order to qualify for the government’s new cost of living payment 

The first £326 payment will arrive before the end of July. A second £324 credit will be paid in the autumn. To be able to claim the first payment, households must have been eligible for pension credit between April 26 and May 25 of this year.

If they have not already made a claim, they can still qualify but they must have started the process before August 18.

Pension credit boosts the weekly income of a single pensioner to £182.60 and £278.70 for a couple.

It is also a gateway to other financial aid, such as money off heating costs, NHS services and a free TV licence if you are over 75.

However, experts warn that the benefit is woefully under claimed, with as many as one million eligible pensioner households estimated to be missing out.

The rules of who is eligible are complex, but you must be above state pension age and on a low income, with few savings.

It is made up of two parts and while some people get both, many can qualify for one of the two.

There is also the savings credit element, which gives you an extra boost if you reached state pension age before April 2016 and made provision for your retirement via savings, work or a private pension. To qualify, you’ve got to earn above a threshold amount of £158.47 if you’re single and £251.70 if you’re in a couple.

Caroline Abrahams, charity director at Age UK, urges older people to take action to ensure they do not miss out.

‘Many people think if you have some savings, or a small pension, there’s no point in applying but that’s often not the case. 

The sooner people act, the sooner they find out if they’re eligible for some of the additional help, and this could be life-changing for them.’

To find out if you are eligible, check the Government’s pension credit calculator at gov.uk/pension-credit-calculator or call 0800 99 1234.

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