What age should I retire and draw my pension?
How can I find out when I'll be able to retire?
The age of retirement is a personal choice. Typically though, most people consider it to be the age when they are able to start drawing either the state pension, their personal pension or both.
Those happy to try and survive off the state pension could currently retire at 60 to 67 depending on their current age. Personal pensions can be drawn at any time between 50 and 75.
However, for obvious reasons, those who take their pension earlier will have needed to save more than those who draw it late.
When will I be able to retire?
According to the Office of National Statistics, the average life expectancy is now 85 for men and 89 for women.
If we use a retirement age of 65, that leaves a work-free 20 years for men and 24 for women.
Minimum wage workers earn roughly £1,000 a month after tax, so a retirement spent on minimum wage earning would require savings of £240,000 for men and £288,000 for women.
So, one way of working out when you'll be able to retire, is when your savings hit those magic numbers.
A good rule of thumb for retirement saving is the following:
Divide your current age by two and use this number as the percentage of your earnings that you should be contributing to a pension.
For example, someone that starts contributing to a pension pot at 30 needs to set aside at least 15% of their earnings. In a nutshell, the earlier that contributions start, the less you'll need to pay out each month.
For those satisfied that they have enough money to support them, the question is usually whether to finish work at state pension age or at personal pension age.
When can I get my state pension?
Provided that you've been in employment and paid national insurance contributions, you'll be entitled to a state pension.
If you've paid 30 years worth of contributions, then you'll be entitled to a full basic state pension.
The full basic state pension in the 2012-13 tax year, was £107.45 per week for a single person (use the Government's state pension calculator to find out exactly how much you are entitled to).
In addition to this, retirees are normally also entitled to a Second State Pension.
This is based on the amount earned during your working life. In the 2012/2013 tax year, this could provide an extra £163 per week.
The Second State Pension will cease to exist in April 2017, when the Government will replace it and the basic state pension with a single pension.
They'll also increase the age at which the basic state pension can be drawn.
State pension age changes
Currently, the state pension can be drawn by men when they reach 65 and by women when they reach 60.
In 2020, the Government will increase the pension age to 66 for both men and women. Between 2026 and 2028, this will rise to 67.
The table below shows a rough guide to when you'll be able to get your state pension based on your current age.
|Retirement age (men)||Retirement age (women)|
|32 - 49||67||67|
|50 - 56||66||66|
|56 - 57||65||60 - 65|
|57+||65||60 - 65|
There is no rule that the state pension has to be drawn the moment it becomes available.
The benefit of remaining in the working world is clear. It's a lot better to simply carry on earning than to drop out and have to try and find employment at a more advanced age.
And there are rewards to be had by those in a position to delay claiming their state pension.
For every five weeks of deferral, the pension will increase by 1%. A year's deferral therefore would increase the pension by 10.4%.
Deferred pensions of more than a year can alternatively be taken as a lump sum. So rather than drawing say £110.40 a week, after a year's deferral you could take £5,270 as a lump sum.
When can I draw my private pension?
Many people have one or more private pensions.
These will either be a defined contribution (DC) or defined benefit (DB) scheme. DB schemes work by paying out a percentage of your final salary on retirement, which is based on the number of years you've contributed to the scheme.
The age at which the money can be accessed is usually decided when the pension is arranged. However, it is often possible to start drawing from the pension earlier or later, depending on requirements.
Drawing a DC pension early can result in penalties and less available money during retirement. Deferring potentially increases the pot, but not necessarily so. Changes in interest rates and fluctuations in the market can reduce the size of the fund.
Similarly, deferring a workplace DB scheme may be possible, but depends on the scheme's particulars.
It's worth bearing in mind that pensions aren't 100% safe. The Financial Services Compensation Scheme (FSCS), which protects savings accounts, categorises pensions as a risk-based investment and doesn't protect against performance losses.
The protection that is offered by the FSCS is typically complex and varies between products, so make sure to check with the provider before signing up for anything.
Citizen's Advice recommends asking for the key facts document when shopping around for a personal pension. It provides a summary of all the important facts about the pension plan.