30 Mar 2016
With job uncertainty, particularly in the oil and gas sector, some people may be offered early retirement as an alternative to voluntary redundancy.
But before giving up work, it’s important to weigh up the pros and cons, and think carefully about how you’ll manage financially.
There are lots of good reasons for taking early retirement. It can be an attractive option if you don’t like your job, if you fancy a change in lifestyle or – as is the driver for many people – if you think it will be better for your health.
But whatever the reasons, it’s important to also consider the downsides – and there are a few pretty major ones:
Many employers will try and make your early retirement package more attractive by building in some incentives. The incentive they offer you will depend on what type of workplace pension you’re in. There are two types - defined contribution and defined benefit. Incentives your employer might offer could include, for example:
Either incentive will give you a better pension than you might otherwise be entitled to.
When considering retiring early, it’s easy to be swayed by thoughts of winter sun, days spent in the garden or more time with your family. What’s required here, however, is a cool head and a disciplined approach. In short, you need a checklist.
First, work out how much income you will have. As life expectancy increases, the average time spent in retirement is nearly 20 years – more than double that of our grandparents. Your total income is likely to be a lot more complicated than it was when you simply received your salary at the end of each month. You may receive income from more than one pension, as well as from savings and from benefits or from a part-time job. The first step, then, is to add it all up.
If you take early retirement, you’ll need to decide what to do with your pension fund.
If you have a defined contribution pension, you will be able to take as much money as you want out of it. One quarter of what you take out will be tax-free, but the rest will be taxable.
Pension planning can be hard to understand at the best of times. If you’re in any doubt about what to do, it’s important to talk to an independent financial adviser before making any major decisions.
Aberdein Considine has a network of independent financial advisers based throughout Scotland. If you would like to speak to one about your circumstances, call 0333 0044 333 or click here.