A common fear when approaching retirement is the thought of running out of money. After a lifetime of earning a salary, it can be strange to imagine living off your pension. This can lead to the important question: “Should I delay taking my pension?”
At Vesta Wealth, we want to stress that your retirement should not be approached with fear. Indeed, for many clients here in Carlisle, this is the most rewarding and enjoyable part of their lives – allowing for more leisure, travel and family time.
However, delaying retirement can sometimes be appropriate for certain individuals. Below, we explain some of the conditions that can influence the suitability of this decision, depending on your specific goals and circumstances.
We hope these insights are helpful. Please contact us for more information or to speak with a financial adviser in our Carlisle or Teesside offices:
t: 01228 210 137`
e: [email protected]
The first question
Before considering whether to delay taking your pension, it is useful to ask first: “Do I have enough money for retirement?” After all, if you have enough to cover your goals and needs, then the case for delaying may be weaker.
It can be difficult to establish your “target number” for retirement by yourself. Many factors weigh into the equation. For instance, inflation will be different during your retirement. Your outgoings may change, and different needs may arise (e.g. paying for care fees).
Working with a financial adviser can help you establish your current financial position (e.g. retirement savings) and the nature of the “distance” between here and your goals for retirement. This process may illuminate a smaller or wider gap than you previously thought.
For example, for some of our clients here in Carlisle, our financial planning process has revealed that an earlier retirement is possible! Others have had to accept that their previous goals were not realistic, given their lower retirement savings. In some cases, this means delaying retirement to allow more time to build up their required nest egg.
Delaying retirement: the cost-benefit analysis
Of course, delaying retirement is not purely a financial consideration. Perhaps you work in a particularly strenuous job and want to “wind down” despite not quite having the savings you would like. Maybe health concerns are weighing upon your decisions.
However, your financial plan must be able to support your retirement goals. For instance, if you want to wind down your laborious job, it may not help to retire with insufficient funds. Indeed, this could lead to needing to pick up paid work in later life to compensate for a lack of pension income. Faced with these potential outcomes, there might be a case for delaying retirement.
Delaying retirement responsibly
What does it mean exactly to “delay” retirement? Commonly, this can mean claiming your State Pension entitlement after you reach your State Pension age. Your State Pension age will largely depend on your date of birth, but in 2024, it is generally 66 for both men and women.
For younger people, however, there is currently a phased increase in State Pension age to 67, and eventually 68.
In 2024-25, the full new State Pension is £221.20 a week (£11,502.40 per year). If an individual defers taking their State Pension for at least nine weeks, their State Pension will increase by 1%. Deferring for a whole year would mean an extra 5.80%. This equates to an extra £12.83 per week.
This is equivalent to £667.16 per year in 2024-25. However, remember that the State Pension currently rises each year under the “triple lock” system – i.e. by at least 2.5% per tax year, to help retain its spending power as prices rise.
One key consideration in light of this is your life expectancy. If you are in poor health and it is unlikely that you will “break-even” by deferring your State Pension, then the decision may not be worth it. After all, deferring the full new State Pension by just one year (in 2024-25) means giving up £11,502.40. If you live longer, however, it is more likely you will receive more in total in the long-term.
There may be alternatives to deferring your State Pension. One possible option is voluntary NI contributions to plug “incomplete years” on your NI record. In 2024-25, it costs roughly £824 to pay for a full missing NI year. This can amount to an extra £328 each year for your pre-tax State Pension. As such, the investment can pay for itself in three years.
The above concentrates on delaying an individual’s State Pension. However, other types of pension may also be relevant to the discussion. For instance, an individual may have a workplace or personal pension, which could be accessed after reaching their Normal Minimum Pension Age (55 in 2024, increasing to 57 in 2028).
Here, it can help to speak with a financial adviser about your options. Keeping your funds invested gives them more time to grow – potentially enabling a more comfortable retirement. However, if you already have sufficient funds to reach your goals, it may be appropriate to begin drawing benefits (strategically, with guidance from a pension expert) allowing you to enjoy retirement.
Invitation
If you would like to discuss your financial plan and investment strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
e: [email protected]
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.