Early retirement: majority stop work before State Pension Age

More than three in five workers retire before reaching State Pension Age, according to new research.

If you're thinking of taking early retirement, there will be a gap before you become eligible for the State Pension and your own savings and investments will have to provide income for a longer period. It's important to consider the impact this might have on your lifestyle in retirement.

In the past, men were expected to stop working at 65 and women at 60. As life expectancy has increased, the State Pension Age has risen and it currently stands at 66 for both men and women (rising to 67 in April 2028). However, there is no default retirement age and these days people have more flexibility in when and how they choose to stop working.

In a survey of 1,050 retired over 55s, retirement specialist Just Group found that 62% left the workforce before State Pension Age. Another 19% chose to retire when they reached that milestone, and the same proportion continued working either full-time or part-time and retired sometime after that age.

Pension withdrawal concerns

While you currently have to wait until you reach 66 to get your State Pension, it's possible to start drawing from your workplace and private pensions from the age of 55 (increasing to 57 from April 2028).

Highlighting concerns about the how long people's pension pots will last, Just Group's Countdown to Retirement survey uncovered widespread use of pension cash by many who have yet to give up work. Over a third (34%) of those who retired before they reached State Pension Age said that they also withdrew money from their workplace or personal pension between the age of 55 and finishing full-time work.

Moreover, data from the FCA, the financial services regulator, shows that a significant proportion of people are taking income withdrawals from their pension savings at an unsustainable rate. As many as 40% of income drawdown plans are withdrawing funds at an annual rate of 8% or over, with another 13% seeing regular withdrawals of between 6% and 8%.

Benefits of staying in work

By retiring early, you could put work stresses behind you and have more time for family, friends and leisure activities. But your pension pot will have to last longer, and if you haven't saved enough there's a risk of running into financial challenges.

A new analysis by Standard Life, part of Phoenix Group, reveals that taking 10 years out of the workforce in your 50s could mean almost £100,000 less in your pension. Five years out could mean £48,000 less, and someone who left the workforce permanently at 50 could have £149,000 less in retirement than if they had worked until 66.

What's more, if you enjoy your job, leaving it might actually be bad for your health and general wellbeing. Staying in work can provide mental stimulation, as well as social benefits.

Working into later life -- whether full-time or part-time, and in your current line of work or something different -- allows you to put more into your pension pot, giving you greater financial security when you do stop work.

Pressure on retirement finances

"The majority of people are retiring before they reach State Pension Age, putting extra pressure on their retirement finances because they must bridge the income gap between stopping work and starting to receive the State Pension," said Stephen Lowe, group communications director at Just Group.

"Unsurprisingly, our survey also discovered high levels of early pension access with nearly three in 10 (28%) taking money out of their pension before retiring, rising to more than a third of those who stopped working before State Pension Age.

"The majority of people using income drawdown strategies are extracting more than 6% a year, substantially higher than benchmark so-called 'safe' rates of closer to 3-4%, exacerbating concerns about how long people's pension income will last.

"We would urge people approaching the age when they can access their pension, and those thinking about when they can afford to leave the workforce, to seek help before making irreversible decisions."