More than two in five or 43 per cent of UK adults aged 55-66 years old have chosen to take an early retirement since the beginning of the pandemic.
According to research by Canada Life, almost 32 per cent of respondents to the study reported having entirely retired, while 11 per cent had semi-retired. Another one in six or 16 per cent of workers have cut back on hours but have not yet retired. When asked why they were retiring, semi-retiring, or cutting back on their hours of work, 25 per cent of respondents stated they were trying to find a better work/life balance, while 21 per cent said the stress of their job wasn’t worth it.
Other significant factors for this decision included long-term health conditions or illness, the fact that one no longer needed to work for financial support, the desire to spend more time with family and friends, the desire for a change in lifestyle, and the effect the job was having on mental health.
Over a third or 35 per cent of those who have chosen some sort of early retirement or decreased their working hours use their savings and investments to augment their income, and 20 per cent have withdrawn a lump payment from their pension. The use of inherited money comes in second with 9 per cent while less than one in ten or 8 per cent report having a second source of income via a side business. Four out of five respondents or 80 per cent said they do not regret their choice to retire early.
The report also suggests that taking a pension before reaching state pension age often results in a 59 per cent reduction in pension assets.
For example, someone who saved from the age of 20 until the age of 55 while earning £25,000 might have amassed a pension pool of about £117,468 at a contribution rate of 8 per cent. But because of the wonder of interest compounding, if they had kept saving up until the age of 67 and qualified for the state pension, this pension would now be worth £186,262, or 59 per cent more.
Canada Life technical director Andrew Tully says: “The drastic impact that the Covid-19 pandemic has had on everyone’s lives has played a part in shifting individual mindsets, making people reflect on and prioritise what truly matters to them.
“It’s good that people feel positive about their decision to retire early but the cost of living crunch will squeeze the finances of many, so we urge people to take stock of their finances before making any snap decisions. For the third of people who tell us they have fully retired, not only will those pension savings need to last for longer, but the pot sizes will be significantly smaller. Hopefully those who have fully exited the workforce have sufficient savings to see them through retirement.
“With retirement now lasting up to several decades, it’s vital for those approaching retirement to consider how they will fund the lifestyle they wish to live and speaking with a financial adviser is a sensible step. These professionals can help you decide the best course of action for your personal circumstances, ensuring you stay on track to enjoy the retirement you have worked hard for.”