I have been made redundant due to COVID-19; can I afford to retire?

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

Unfortunately, this is a question some people are asking themselves as the pandemic continues to affect the economy with the UK entering a recession for the first time in 11 years. Businesses are being forced to act for future survival. But does being made redundant, provide an opportunity to those with retirement on the horizon?

I have split the consideration into two key questions which should assist in understanding whether you should, or should not, retire early.

The first question should be; am I ready to retire? And what I mean by this is not a financial matter, but what would you do with the additional time retirement offers? You may plan to holiday and travel more frequently, enjoy the things you never had the time for previously such as reading, alternatively you may wish to take up a new hobby, or skill, such as golf. On the contrary, if your friends are not in the same position, and with the additional time you now have, would retirement seem lonelier than you imagined with a sudden feeling of having a lack of purpose. This is a crucial starting point to understand what retirement looks like for you, and forms part of the financial planning process.

Secondly you should be asking; after outlining my goals and objectives, can I afford to retire? I wrote a blog which partly answers this question and can be read by clicking here. In summary, the blog focuses on the importance of expenditure vs expected income and how much may be needed in retirement using an example. It also touched upon future cash flow planning which forms an integral part of the financial planning advice at Wingate Financial Planning and I explain more below.

Given your retirement plans, will you have sufficient assets to live the life you intend to, or not? A personalised cash flow forecast tailored to your specific circumstances, along with using general assumptions (for growth and inflation), can be a powerful realisation assisting you in making informed decisions. Tailoring to your personal intentions such as holidaying, home improvements or something more extravagant as buying a boat can be forecast to highlight whether it is achievable, or not. Specific scenarios such as ‘what if I was made redundant?’ can be plotted to highlight the impact of such events on your financial future.

Understanding what to do with your redundancy payment can also be incorporated within your cash flow forecast. Dependent on the amount received, will of course impact on how it is used. There are many options, and with good planning, the funds can be used effectively to assist, and improve, your plans to retire. Individual situations will differ, but I highlight a few considerations below:

  • Retain the funds in cash to fund your immediate income needs
  • Replenish your cash reserves
  • Invest
  • Make use of a pension if you have the ability to do so
  • Pay off your mortgage
  • Enjoy some of it!

The solution for you may be a combination of some, or all. Subject to your wider financial position (other pensions, investments, or assets), liabilities, age, future income & expenditure, and health will all have a bearing on how the funds are used.

Now more than ever it remains important to seek financial advice to discuss the options and solutions available to you, particularly with potentially life changing decisions such as redundancy and retirement.

At Wingate Financial Planning we strongly believe in financial planning for the long term and are here to assist in making informed, financial decisions with you. Please do not hesitate to get in touch.

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26 Apr 2024

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