Retirement at 54: A journey into a richer life

Retired Director of Studies and former Head of Economics Joe has kindly guest blogged for us to talk about what early retirement means for him.

After 30 years in teaching, I retired this summer. I’ve been planning retirement for years because my wife is quite a bit older than me, but the plan to retire at 55 was amended when a friend of mine managed to get tickets for all the England Rugby World Cup group matches. So, I obviously had to retire this summer, even though I’m still 54 (but 55 in October, so it’s doable).

Anyway, quite a few friends and colleagues have been a bit shocked about the early retirement. How can you afford it? Won’t you get bored?

I’ll start with the second question. My wife retired before me and doesn’t understand where she found the time for work! There always seems to be something on. For me, I’m looking forward to spending more time playing tennis, particularly padel tennis, volleyball and missing fewer Brentford matches. There’s the poker, of course, and having the ability to go to Vegas for the World Series of Poker during June, when all the tasty tournaments happen, rather than July, when it’s effectively all over.

I have also had a 10% share in a racehorse and for the last two years, and yet I have only seen the horse once! I expect more trips to the racecourse during retirement, including Cheltenham and Royal Ascot, which have always taken place during term time.

Then there’s the travel. Only four holidays booked so far. It’s almost as much fun planning the adventures as it is experiencing them (a bit of an exaggeration).

Now back to the first question

There is the obvious issue with retiring early as a teacher: the actuarial reduction is pretty fierce. My monthly pension income will be about 30% lower than if I had worked to the regular retirement age of 60 (for those my age). But I think that’s fair enough. First, I’m claiming the money five years early, meaning I’m missing 60 contributions into the Teacher’s Pensions Scheme. Secondly, I’m claiming the monthly payments early, getting an extra 60 pension payments. Finally, I might be getting those lower monthly payments for even longer, given the five fewer years of work/stress, although the evidence is mixed on that point.

For me, though, there’s a more important issue. And it’s something that has been at the front of my mind whenever the issue of retirement income comes up. Do you think in terms of “What will I get at 60?”, or is your view “How much will I need to live, and at what age will I reach that target”?

Again, I’ve been lucky, because my older wife has had her children (I have three step-grandchildren) and so we have no children at home and the mortgage is almost paid off. I’m not going to lie – If I had children I’d be going back to school in September. So, from quite a long way off, I have been able to plan for a retirement at 55 with a rough target income.

Writing this has reminded me of the phrase I have often used when my wife says “We can’t afford it”. My response is “But, we’re rich”. Now, obviously we are not rich compared with footballers, celebs, etc. (And at the time of writing numerous footballers are off to Saudi Arabia. They are sacrificing millions and football in the best league in the world, for some more millions for rubbish football in a country with a very poor human rights record. How many millions is enough? Give me one million, I’ll invest it, and be fine for life. I digress.)

What I am getting at is that things (and usually it’s experiences rather than ‘things’) are more affordable than one initially thinks. And this applies to retirement. You may have seen those studies put out by Which? and others giving estimates of what is required for ‘necessities’ in retirement, or a ‘comfortable’ retirement, or a ‘luxury’ retirement. The figures are always lower than you think.

At the time of writing, an IFS survey has just been released on inequality. 47% of those surveyed thought they’d be less comfortable than their parents. This included the 50-64 cohort, despite their parents, on average, having accumulated much less wealth than them. People have more money than they think, and life is less expensive in retirement than they think. Lockdown gave us a taste of the latter.

I understand that those with a pension pot (i.e. a defined contribution pension) are worried whether it will last (see the endless articles in the Sunday papers), but if you are in the lucky position of having a defined benefit pension, the income is guaranteed for life and indexed linked. If it’s enough, then you are fine, and perhaps even feel ‘rich’. Hence the catchphrase.