5 questions to help you decide if you’re ready to retire

The sprint event in track cycling can be confusing to those who don’t know much about the sport. It often begins with two riders pedalling as slowly as possible, making their way around the track at a snail’s pace. Typically, one rider eventually speeds up and their opponent rushes to catch them. The final portion of the race is then a fast sprint to the finish.

To the untrained eye, this might seem like a strange way to race but it’s a very tactical game. The riders know that they must preserve their energy because if they set off too quickly, they’ll tire themselves out before the end and hand the advantage to their opponent.

Conversely, if they wait too long, they may miss their chance to build speed and unlock their maximum potential.

Equally, the rider at the back benefits from being in the slipstream of the leader. So, both riders build momentum slowly, trying to get into the best position before the final portion of the sprint. They can then choose the opportune moment to kick into action and draw on their energy reserves to get them over the finish line first.

This is much the same as planning for retirement.

Just as a cyclist who speeds up too early risks expending their energy before they reach the finish line, rushing into retirement could mean you spend your savings too quickly. Yet, if you wait too long, you may not achieve everything you want to in later life.

That’s why it’s important to spend the years before retirement building up your assets and positioning yourself correctly. Then, you can choose the perfect moment to switch gears and start drawing on those savings to fund your lifestyle in retirement.

There are several financial and emotional aspects to weigh up when choosing your optimum retirement date, so it’s important to consider your options carefully.

Read on to learn five key questions to help you decide if you’re ready to retire.

1. Do I want to stop working?

For many people, retirement is the culmination of their working life. All their hard work allows them to build savings so, eventually, they can retire and enjoy their free time.

However, you may not want to do that. If you find your career fulfilling or you haven’t achieved everything you hoped to in your professional life, you might not be ready to stop working yet. Additionally, you might like the social aspect and enjoy the sense of purpose that a job brings.

In fact, some people find retirement very challenging because they lose this regularity and direction in their life.

So, consider whether you are emotionally ready to retire.

Many people are choosing “semi-retirement” where they work part-time and supplement their income by drawing from their pension. However, there are some specific pension tax rules that may affect you if you choose this option.

For example, you might trigger the Money Purchase Annual Allowance (MPAA) if you draw flexibly from a defined contribution (DC) pension. This limits the tax-efficient contributions you can make to your pension. This is something you may need to consider if you are working part-time and still building your retirement savings.

It could be useful to seek professional advice to ensure you are being as tax-efficient as possible if you semi-retire.

2. What do I want my retirement to look like?

Next, it’s important to consider what you want your retirement to look like because this could affect your decision about what age to stop working.

For example, if you plan to travel to far flung locations around the world, bear in mind that long-haul flights and physically demanding trips may be challenging when you are older. As a result, you might decide to retire as early as possible so you can achieve some of your more adventurous goals.

You may also want to spend as much time with your children or grandchildren as possible while they are young, so this could be another reason why finishing work soon is a priority.

Conversely, staying in work for longer could allow you to continue paying into your pension and benefiting from employer contributions. So, if you have expensive goals in retirement such as purchasing a holiday home, you might delay retirement to increase your savings.

Finding a balance between building wealth and giving yourself enough time to enjoy your savings is often one of the most challenging aspects of retirement planning.

3. Is my health good?

It could be useful to consider whether you’ve had any serious health problems in the past when deciding when to retire.

If your health isn’t particularly good, you might want to bring your retirement forward so you can make the most of your later years in case your condition worsens.

It’s worth considering how active you want your lifestyle to be too. Even if you are in good health now, you may not want to risk delaying your retirement if you plan to be especially active as you could be more likely to face restrictive health problems later in life.

4. How much will my retirement cost?

Understanding how much your desired lifestyle is likely to cost could give you an idea of whether you are ready to retire.

It may be useful to create a retirement budget that includes:

  • Housing costs
  • Social spending
  • Utility bills
  • Transport costs
  • Travel
  • Supporting family members
  • Care costs

By adding up these costs, you can determine what level of income you need each year to sustain your dream retirement lifestyle.

We use cashflow planning to help you understand whether your retirement plans are achievable. We also utilise “stress tests” as part of this process, for example, to assess the impact of higher levels of inflation or a market crash, to determine the robustness of your finances. We can also model various scenarios to see how large expenses such as care costs or paying for a child’s wedding would impact on your retirement objectives.

5. How will I generate an income in retirement?

Once you know how much you need to fund your lifestyle, you may want to consider how you will generate that income.

To do this, you can look at what assets you currently have to draw an income from. This includes your:

  • State Pension and other government benefits
  • Your existing pension arrangements
  • Investments
  • Savings
  • Property

You will also need to consider how you can use these assets to generate income and lump sums in retirement. For example, you could use your pension savings to purchase an annuity or utilise income drawdown and take the required levels of income as well as lump sums.

It’s important to consider how tax-efficient you are when drawing from your assets too, as you normally pay tax on any pension income that exceeds your Personal Allowance (£12,570 for the 2024/25 tax year).

Conversely, you won’t pay tax on any monies invested in an ISA, therefore, you might draw on these funds first before accessing your pensions to mitigate a large tax bill.

Additionally, non-ISA investments may be subject to Dividend Tax and Capital Gains Tax (CGT) but this is typically charged at a lower rate than Income Tax.

We can discuss these tax implications with you to help you find the most efficient way to generate a retirement income.

After assessing your position, you may find that you can already achieve your desired retirement. Alternatively, you may discover that you need to build more capital to do so, therefore, you aren’t ready to retire quite yet.

Get in touch

If you need help deciding on the best time to retire, we can give you some guidance.

Email hello@fcadvice.co.uk or call 0333 241 9900.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Are you retirement ready?