How much is ‘enough’ to stop working?

Apparently we’re living longer but not necessarily enjoying good health in old age. Pension schemes, including the NHS Pension Scheme, are reflecting this longevity by extending the normal retirement age.

Are we facing the prospect of working long hours for more years, only for ill-health to spoil our enjoyment of our long overdue R and R in our remaining years? Surely our future needs to be rosier than this?!

How much is enough for you to stop working?

There is always an assumption that work is what we are seeking to escape from. In actual fact, working through choice rather than necessity can change your perception and, some studies suggest (although not conclusively), your health too!

Swift vs gradual retirement for doctors and dentists

From speaking to my clients over the years, I know that those who take retirement in one swift movement, going from having two days a week of ‘freedom’ to seven, can find it difficult.

I’m sure you also probably know of colleagues who have ‘retired’ but who still work, albeit fewer hours, and are enjoying work/life much more now! They’ve drawn their pension which tops up their reduced working income.

Same income, less working hours

This sort of more gradual transition into retirement is made all the more possible by the new pension regulations. The greater freedom you now have to take your pension benefits from the age of 55 means you can work fewer hours whilst maintaining a similar level of income. What’s not to like?

Private pension holders

If you’re wholly reliant on private pensions, you can draw on your private arrangements at a level to suit your financial needs. That is, of course, as long as you have enough in your pension fund to provide your required long term income.

NHS Pension Scheme members

The NHS Pension is slightly different, depending on which scheme you’re in.

  • 1995 NHS Pension Scheme: You have to take your whole pension when you retire i.e. you have to retire and then be reliant on your employer valuing your services highly enough for them to re-employ you.
  • 2015 Section of the NHS Pension Scheme: You can draw part of your pension and continue working without having to retire.

Making sure ‘enough’ really is enough

For NHS Pension Scheme members, the lovely new pension flexibilities do have one drawback: it’s more difficult to make additional pension contributions.

With the annual pension allowance now only £40,000pa and the allowable overall value of all of your pensions capped at £1m, additional pension contributions are not advisable for all bar a minority of NHS Pension Scheme members.

For private doctors and dentists who aren’t in the NHS Pension Scheme and/or aren’t fortunate enough to have the backing of a final salary scheme pension, using other pension vehicles to build your retirement fund should be one of your first considerations.

But beware; if your earnings are over £150,000, the amount you can contribute into a pension (including employer pension contributions) may be further reduced to below £40,000pa from April 2016. It will depend on your personal circumstances, so you’d be wise to seek advice quickly to clarify your situation and the opportunities you have.

I don’t mean to make it sound complex, but whether you’re an NHS Pension member or not, the steps necessary to safeguard your options in the run down to retirement have never been so individual, and so fraught with tax traps that the uninformed could fall into.

How to retire happy with ‘enough’ money?

I firmly believe that those who are successful in retirement have done two things well:

1. They have planned how they are going to spend their time. They may not have all the detail (they have fun filling this in), but they have a good overall picture.

2. They have planned financially. They have an indication of their expenditure and know what sort of income they need to ‘live’ their retirement as opposed to ‘survive’ it.

The tools we use to achieve this desired income in retirement may be evolving but the fundamentals remain the same. You need to calculate what your ‘enough’ is! Once you know what that amount is, you can make plans, keep them under review with the help of your financial adviser, and confidently face whatever the Chancellor throws at us next.

Which retirement option would you prefer, a swift or a gradual retirement? Let us know your thoughts by adding a comment below.

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