Received wisdom states that we should all plan to retire much later. This is to compensate for declining pension returns. On the face of it, this sounds eminently sensible. As an idea for our cash flow plan, it’s fine.
However recent government statistics shows an interesting fact. For the first quarter of 2016, the employment rate for those aged 65+ is about 10%. That’s slightly down from the previous year. There seems to be a very long way to go from where we are to where we’re supposed to be heading. That is, a situation in which the majority of us work into our late 60’s or beyond. There are several reasons for this, including:
- Redundancy could force us back into the labour market. It could be at a time when we no longer have the motivation and drive to find employment. Let alone well-paid employment.
- Our health, mobility or stamina may decline. At some point, work could be impossible or impractical.
- We’re not all lucky enough to love our job. We may reach a point where losing the income is preferable to continuing with a job we hate. It may be too late to retrain for a completely new career. We may need to devote large chunks of our time to caring for an elderly or sick relative. Or we may need to provide childcare support to grandchildren.
Of course none of these scenarios may come to fruition. But planning to work to 75 when you’re now 50 (for example), seems financially over-optimistic. It’s much more prudent to plan for an early retirement than a late retirement. Suppose we over-spend on the assumption that we’ll be working well into our old age. Then if we find we can’t work any more, our retirement savings may be inadequate.
Even if we wish to work much longer, our cash flow plan should assume that we won’t be able to. As we approach our originally planned retirement age, we can then gradually adjust our plan. Closer to the time, we can allow for a later retirement, if that’s what we wish. At the same time we can gradually increase our discretionary spending.