Retirement does not always mean going from full-time work to stopping completely.

For one of our clients, the question was whether he could start enjoying greater freedom from work now, while remaining confident about his longer-term financial future.

Our client was approaching 55 and running a successful business. Although things were going well, he did not want to continue working long hours indefinitely.

He wanted to reduce his working hours, with the aim of retiring fully at around 60.

He had substantial pension benefits worth more than £1 million at the time.

Although more than £1 million sounds substantial, retiring in your mid-50s can mean funding several decades of expenditure while maintaining the lifestyle you have worked hard to build. There may also be significant family commitments along the way — for example, helping children with house deposits, weddings or other major life events.

The headline value alone did not tell us whether his plans were sustainable.

He wanted to understand whether he could reduce his working hours now, retire fully at around 60, and still feel confident about his long-term financial security.

The real question was:

Could he afford to work less now without putting his future financial security at risk?

Starting with the life he wanted

Before looking at pensions or individual financial decisions, we needed to understand what our client actually wanted his future to look like.

He had built a successful business, but he did not want to spend the next five years working at the same intensity.

His objective was to create a gradual transition into retirement: reducing his working hours first and then stopping work completely at around age 60.

That gave us something much more useful to plan around than simply asking how much retirement income his pensions might provide.

It allowed us to start with the life he wanted and then consider whether his finances could support it.

Modelling different retirement scenarios

We undertook detailed lifetime cashflow planning to explore how different decisions could affect our client’s financial future.

This allowed us to model different scenarios and consider how his existing financial resources could support his plans.

Rather than looking at his pensions in isolation, we could consider the bigger picture: his expected income, expenditure, retirement plans and the resources available to support them.

That is particularly important when someone is considering retiring relatively early.

A pension valuation may look substantial, but the important questions are what lifestyle that wealth needs to support, how long it may need to last and what other demands might be placed upon it over the years.

Future expenditure may not simply consist of regular household bills and holidays. Life can bring larger one-off costs too, from home improvements and replacing cars to helping children with house deposits, weddings or other important milestones.

The modelling helped us explore whether reducing his working hours was financially sustainable and what the longer-term consequences of different choices might be.

In other words, we could turn:

“I’d like to work less.”

into:

“What happens to my financial future if I do?”

Looking beyond retirement income

Retirement income was not his only consideration.

Our client also wanted his wider family circumstances to form part of the planning.

That meant considering several objectives together:

• reducing his working hours;
• retiring fully at around 60;
• maintaining his long-term financial security;
• creating flexibility over future income; and
• considering his family’s financial position as part of the overall plan.

This is why retirement planning is about much more than pensions.

Pensions may be an important part of someone’s financial position, but the real purpose of the planning is to understand what their accumulated wealth could allow them to do.

For someone who has spent decades building a successful career or business, that can mean changing the question from “How much have I accumulated?” to “What can the wealth I’ve accumulated now enable me to do?”

Making the decision

Our analysis gave the client a clearer picture of the financial implications of changing the way he worked.

The planning undertaken at the time involved pension and tax considerations specific to his circumstances and to the legislation then in force. Those rules have subsequently changed, so they are not the important lesson from this case today.

What remains relevant is how the decision was approached.

Rather than starting with a financial product or a particular pension strategy, we started with the client’s objective:

He wanted more of his time back.

Lifetime cashflow planning allowed us to explore whether his accumulated financial resources could give him that freedom without creating an unacceptable risk to his longer-term financial security.

The value of the planning was therefore not simply in arriving at a financial recommendation. It was in helping him understand what was possible.

What this case illustrates

For many people approaching retirement, the most important question is not:

“What should I do with my pension?”

It is:

“When can I afford to live differently?”

For some people that means retiring completely. For others, it might mean reducing their hours, stepping away from a business gradually or simply creating more time for family and the things they enjoy outside work.

And having accumulated a substantial amount of wealth does not automatically answer that question.

Financial planning can help explore questions such as:

• Could I afford to retire earlier than originally planned?
• Could I reduce my working hours before retiring completely?
• How much might I need to maintain the lifestyle I want?
• How long might my money need to last?
• What happens if investment returns are lower than expected?
• How might my pensions and other assets work together?
• Could I afford to help my children financially without compromising my own future?
• How much flexibility do I have if my plans change?
• What might my decisions mean for my family?

For this client, his pensions were clearly important.

But the purpose of the planning was not simply to maximise his pension income. It was to understand whether the wealth he had accumulated could give him greater control over how he spent his time.

About this case study

This anonymised case study is based on genuine financial planning undertaken by Rowley Turton some years ago. The client’s name and certain identifying details have been removed or changed to protect confidentiality.

Pension legislation, taxation, allowances and financial planning practices have changed since the original advice was provided. We have therefore focused on the client’s circumstances, objectives and the financial planning process rather than presenting the specific historic recommendations as strategies that would necessarily be appropriate today.

Every client’s circumstances are different. Tax treatment depends on individual circumstances and may change in the future. The value of investments and pensions can fall as well as rise, and you may get back less than you invest.

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If you’re starting to think about working less or retiring, an initial conversation can help you explore what your finances might allow you to do — and what you may need to consider before making a decision.

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Making the right options with your pensions if you’re planning to retire in the next 5 years

In this webinar, Chartered Financial Planners Martin Stanley and Scott Gallacher explore some of the decisions to consider as retirement approaches, including how much you might spend, investment performance, inflation, helping your family and the importance of maintaining a margin for safety.

They also explain how lifetime cashflow planning can help answer one of the biggest retirement questions: when can I afford to retire?

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Written by Scott Gallacher, Chartered Financial Planner at Rowley Turton, 50 Today 100 Tomorrow explores some of the financial and lifestyle questions that come with planning for a long retirement.

Retirement could last much longer than you expect. The book looks at how to think about the wealth you have accumulated, the lifestyle you want to maintain and the choices you may face along the way.

Whether you’re thinking about retiring soon, working less or simply wondering what your financial future could look like, it is designed to help you start thinking about the years ahead.

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