Friday, 7 October 2016

Money, Money, Money

How did I get here?

Around five years ago when I was 55 I started to realise that retirement was something on the horizon, imminent not distant. I knew that in my profession of teaching I could carry on pretty much as long as I wanted to. If I wanted my full pension then I would need to work until the age of 64. However I also knew that from the age of 60 I could, if I wanted to, retire without loss of benefits as 60 was considered the normal retirement age. The other option I had was leaving at 55 but to do so would have meant having pension payments actuarially reduced. Decisions, decisions.

When to go?

The key point was that at 55 retirement was suddenly an option. But at 55 I was still enjoying my work. I was a deputy headteacher of a special school, teaching drama and music and pretty much at the hub of what was going on at the school. As I approached 60 however I realised that my full-on working day was leaving me increasingly exhausted and unable to enjoy my interests outside of work. I decided that for me leaving at 60 would be the best option. I would still be young enough to enjoy my retirement and take on new challenges and I knew that I could also find some part-time work and take on some volunteer activities. Having decided that I wanted to retire at 60, the next big question was could I afford to retire at 60?

How much do I need?

I’m sure that many people contemplating retirement come up against this question of working out how much money they will need for a comfortable and fulfilling retirement. I knew that I was one of the lucky ones in that as a teacher I would be receiving an index linked final salary pension which in my case amounted to 45% of my final year’s salary plus a lump sum. I know in today’s terms this represents a good pension but for me it still meant a big cut in my income. What I decided to do was to see if I could live off what would be my pension income for two years prior to my retirement and see what kind of lifestyle that would give me. So, two years ago any income above what I expected to receive as my pension went into either savings or investments. What I found was that my notional pension was indeed enough to get me through my core spending. I had paid off my mortgage so my monthly “allowance” only had to cover food, energy, transport, household expenses, going out and other day-to-day expenses. Holidays and other big events such as Christmas were the times that I allowed myself to dip into savings. The result was that two years living successfully and well on what would be my pension helped me make my decision. I could retire!

Goodbye saving, hello spending

What that two years also made me realise was that once retired I would not be doing any more saving as my pension would now just cover the monthly expenses. Saving would come to an end. My financial strategy prior to retirement was to pay off the mortgage, see my boys through university, save and invest. My financial strategy post retirement is to nurture those savings, monitor the spending of them and make sure I leave enough for the future.

Making your money work

My next post will look at where can you put your money in these times of low interest rates and stock market volatility. I will detail what I have done in the hope that it may provide others with some ideas but equally I would welcome suggestions from others as I am no financial expert, just an amateur trying make make my money work and listening to hopefully good advice.

Please get in touch

I would be interested to know how other people approached their retirement and whether anyone else tried to live off what was going to be their retirement income and if so how that went.

Any comments will be more than welcome and I promise to write some more light hearted posts soon. Money’s important but boy can it be a boring subject.

Toodle pip.

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