Should I retire early following my redundancy?
When you’ve been made redundant at a later age in life, it can be difficult to decide whether you should try alternative employment or retire earlier. Redundancy can often be an opportunity to reflect on your life and what truly matters to you moving forward. If you choose early retirement, but if you’ve not even had a chance to evaluate your pensions and plan your retirement, the prospect of life after redundancy can seem daunting. You might be facing questions like:
- What happens to my pension after redundancy?
- Can I get my pension early if made redundant?
- Does a redundancy payment count as income?
But don’t worry, these questions are more common than you think. At ML Financial Associates, we recently helped Martin*, who faced the tough decision of choosing between employment or retirement after redundancy – and more importantly, which was more financially viable.
Who We Helped
Redundancy is an extremely difficult situation to approach, whatever your circumstances, but for Martin, it was a question of whether he needed to get alternative employment in the first place.
Being in his early 60’s, Martin knew that following his redundancy the chance of finding alternative employment could potentially be limited by his age and health. Therefore, Martin began to consider the possibility of taking early retirement, consulting ML Financial’s experts on whether he would be financially stable in doing this.
The Goal
When you’re looking to retire before retirement age, it is important to work out whether you are able to support yourself in the long run. But it’s not just yourself that you need to consider – for example, Martin was married, so he needed to make sure his decision would not compromise his wife’s standard of living as well.
Our financial advisors aimed to give Martin and his family the reassurance and peace of mind needed for Martin to retire in a financially responsible way. Moreover, to do this, our advisors would need to take full stock of Martin’s financial situation and ensure that means were available to meet all of Martin’s needs and goals for the future.
The Solution
Our first port of call for Martin was to confirm that retirement was a viable option following the redundancy. Our advisors did this through cash flow forecasting, which is looking at someone’s wants and needs over the long term and calculating what’s needed to achieve them. This would help us understand his current financial situation, make informed decisions and plan sensibly for the future.
By evaluating Martin’s finances, we used his cash resources, including his redundancy payment, to improve the efficiency of his overall financial portfolio. This would generate investment returns to make his assets more sustainable over time.
We did this by investing a large proportion of his redundancy settlement into his pension, through using his current year’s allowance and by carrying some forward from the past 3 tax years when his annual allowance had not been used. This meant we could contribute over £80,000 into a pension, which increased to over £100,000 because of basic tax relief applied by HMRC. We then achieved almost £25,000, totaling over £44,000 in tax relief.
This covered a year’s income for Martin – giving him peace of mind and confidence to turn his redundancy into retirement, knowing that he would be financially stable. Our financial advisors were able to dispel Martin’s worries and fears, setting his finances on the best path.
Life After Redundancy
Our financial advisors were able to raise the income needed for Martin in a tax efficient manner through this mixture of retirement options. Martin now has flexibility and security until reaching state pension age, which was the point at which he previously thought he had to work until. Our financial advice has meant Martin can live comfortably in the knowledge that his finances are in hand – letting him enjoy his well-earned retirement.
Are you facing redundancy and considering early retirement?
Our financial advisors can help set you up for a financially strong future, in spite of the circumstances. If you’re facing this situation just like Martin, get in touch with ML Financial Associates today for a consultation.
*Name changed for privacy
