Informed Choice chartered financial planner Martin Bamford was featured in the Observer yesterday, commenting in an article asking whether people can afford to ever retire.
The article was prompted by new figures from the Office for National Statistics which show that the number of people working past State pension age has nearly doubled over the course of the past 18 years.
These figures show that 1.4m people in 2011 are still working past the State pension age, compared to 753,000 people in 1993.
Commenting on three cases studies for a self-employed person, private sector employee and public sector employee, Martin had the following to say:
For the self-employed person, “Cyrus should focus for a few years on achieving profitability within the business and then work with his professional advisers to understand the most tax-efficient ways in which to extract these profits by making pension contributions. Cyrus appears to display the typical entrepreneurial mindset when it comes to taking risks with his money, so he might want to take less risk within his pension funds to balance things out.”
For the private sector employee, “Robert is not alone in waiting to be forced to save for his retirement. But the introduction of auto-enrollment is unlikely to encourage him to save at the level he needs to have a financially secure retirement. A plan based on continuing to work forever is rarely practical or realistic. Sickness or lack of work are both factors that tend to force people into retirement much earlier than planned.
“At 31 years old, Robert is young enough to make a real difference to his retirement if he is prepared to save. But if buying a first home is his priority, he still has a few years before he really needs to start worrying about tying money up in a pension. In the meantime he should save what he can in flexible and accessible cash savings accounts and Isas.”
For the public sector employee, “You would expect Anna-Marie to be in the most financially secure position in retirement. Despite the latest series of reforms, public sector pensions typically offer the most generous benefits of any type of pension scheme.
“Anna-Marie will receive a projected benefit statement once a year which she should review carefully. And as she gets closer to her retirement age, it will become easier to understand how this pension income will support her desired lifestyle in older age. Making regular savings to create a cash fund alongside her pension benefits is a smart move. Once she has built up an emergency fund equivalent to three or six months’ typical expenditure, Anna-Marie might consider creating a longer-term savings fund or even investing in an Isa.”
Every situation is different, and it would be wrong to generalise based on type of employment – although there are often some similar attributes shared by people who are self-employed, employed in the private sector or employed in the public sector.
What matters regardless of employment type is having a specific plan to deal with retirement.
Whilst working forever can sound like a reasonable ‘plan’ for many people who find retirement planning unaffordable, in practice it tends not to work out that way. Lack of work or ill-health are two of the main reasons why people are forced into retirement, often at an earlier age than they had originally planned.
The cost of retirement planning can be scary and can mean having to sacrifice some short-term priorities. Failing to plan for retirement can result in even worse outcomes in later life.
Photo credit: Flickr/Raymond Larose