Taking the plunge into early retirement doesn’t have to be stressful

That moment before you retire (especially if you’re doing it early) can feel like you’re standing at the top of a high diving board – full of fear and trepidation before leaping off. But it doesn’t need to be this way.

Some things in life are more stressful than retirement – but not many.

The Holmes-Rahe stress scale, first used in the 1960s, lists a whole host of stressful life events believed to contribute to illness. Compiled from sifting through thousands of medical reports, these stress events range from the mildly stressful such as going on holiday, to the seriously anxiety-inducing.

Retirement makes the Top 10. Only events such as divorce, the death of a family member, going to prison, or getting fired come above it. The message is retirement is never something taken lightly.

One of the reasons why retirement is such a high-stress moment is the sheer number of unknowns: Have I saved enough money? What happens if I get ill? Can I protect my family too? You’re having to look into the future and think about what your health will look like in one or two decades’ time, how your savings will stand up to changes in tax policies, what the economy will be doing.

It’s all extremely hard to envisage – and what happens if you’ve miscalculated?

Early retirement can seem like an even bigger leap

These questions are even more pertinent if you’re retiring early.

For many, early retirement is the ideal. Many clients who come to see us have worked hard and want to enjoy their wealth when they’re still healthy enough to. And why not? The options open to you when you’re in your mid-50s are much more plentiful than if you wait another decade or so.

But there’s a huge gulf between dreaming about it and achieving it, The fear of the unknown looms even larger when there’s a longer road ahead.

One of the biggest is, will your savings go the distance?

Previous research for the LV Wealth and Wellbeing Monitor back in 2022 found about one third of people surveyed were retiring early. However, around the same number said they weren’t in a good financial position to retire when they did.

Pensions are typically expected to last 20 years or more, but with early retirement you’re probably hoping your savings will go even further. According to the Office for National Statistics, a man retiring now has an average life expectancy of around 85 (88 for a woman). There’s a one in four in chance they will live to 92 and a one in 10 chance they’ll live to 96. This means if you retire at 55, your savings could have to last another four decades or so. And that’s before you’ve considered other factors, such as using your wealth to help children or grandchildren or something more altruistic such as leaving a legacy to a charity.

It’s all in the cash flow

How you spend your money in retirement changes greatly over time.

In the early stages, you’re more likely to have bigger one-off spends. For example, longer, perhaps once-in-a-lifetime holidays, home renovations, or a second property. While these bigger payments are likely to taper off as you get older, spending might increase in other areas such as paying for home help or care services. Your finances may also be affected by the needs of other generations too, such as helping your children get on the housing ladder or paying your grandchildren’s school fees.

The key to successfully managing retirement – especially if you’re doing it early – is getting a clear view on your cash flow. We help clients create a detailed lifetime cashflow forecast based on their income requirements and lifestyle costs. This includes how much money they need for travel, hobbies, or other expenses. We then stress test these using cashflow modelling in different scenarios, for example if interest rates rise, or if you have to deal with unexpected costs.

Retiring early and stress free – Mark’s story

For Mark, early retirement had always been the plan. After losing his father at just 44, he was determined not to stay in work for the rest of his days. But making it a reality was still fraught with hundreds of ‘what ifs’.

“The concept of early retirement when you’re only halfway through your life is difficult,” Mark explains. “I felt totally overwhelmed at times. This pot of money has to last you for the rest of your life.”

To alleviate the stress, one of the first things we did was run through several cashflow modelling scenarios. The results showed Mark could achieve the income he wanted as well as the ability to make the large purchases he had planned. “That gave me the confidence that retiring early was the right decision,” he says.

Mark retired in May at 57, and is now enjoying life between his home in Scotland and a property in Portugal, playing golf, and spending time with his children.

Read more of Mark’s story here.

So what now?

That final decision to retire can feel a bit like standing at the top of a precipice. waiting to jump off, exciting maybe, but definitely a scary and highly stressful moment.

However you approach your retirement, whether taking it early or leaving it as late as possible, there are always likely to be questions and ‘what ifs’. Having a detailed plan in place gives you a solid base to work from, meaning we can take as much stress out of the situation as possible. That way, your next step won’t be as much of a leap into the unknown.

If you’d like to know more about how to retire early, please contact one of our advisers.