Early retirement - what to bear in mind

There are various reasons why people choose to stop working earlier or reduce their working hours. Perhaps you simply want more time for friends, family and enjoying life. A commonly cited reason is that a partner is older and they want to stop working together.

Another reason may be that you started working at a young age and that the work is becoming physically or mentally too demanding. Finally, the gradually increasing State Pension age also plays a role. From 2024 to 2027 inclusive, the State Pension age is 67. In 2028, the State Pension age will increase to 67 years and three months. This will also apply in 2029. Not everyone wants to continue working until that age. Whatever the reason, you need a solid financial plan in place before you retire or start to reduce your working hours.

Stopping work earlier or reducing your working hours costs money. From the moment you stop working early or work fewer hours, your income will be lower. If you have built up sufficient assets in time, you may be able to bridge a period of lower income yourself with additional funds from your assets.

You should ask yourself:

• What is your current income and what capital do you have?
• How much does your current standard of living cost and could you make any cutbacks?
• How much pension do you have built up?
• How much earlier do you want to retire or how much less do you want to work?
• How do you expect your income and capital to develop?
• Do you need to draw on your capital?

Let’s say you’re 50 years old and want to retire early. Your net income is €5,000 a month, of which you spend €4,000 and save €1,000. You will receive the state pension at 68 years and 3 months old. You think you’ll need €5,000 a month in just over 10 years’ time to live comfortably.

Please note that it is important to have built up sufficient pension by the time you reach State Pension age. If you stop working earlier, you will no longer accrue pension benefits. And if you reduce your working hours, you will accrue less pension. This will affect the amount of pension you ultimately receive. Make sure you are well informed about your pension situation and the supplementary options that may be available.

How much earlier can you retire? If you have capital worth:

• € 150,000, you can retire five years* earlier at around 63 years old.
• € 300,000, you can retire eight years* earlier at around 60 years old.

_{*Please note: tax, inflation and a return on your money have not been taken into account.}

If you retire early or reduce your working hours, you’ll build up less pension or even stop building it up altogether. This will affect how much your pension is ultimately worth. So be sure to find out what will happen to your pension and whether you’re able to top it up. If you want to find out more about this, read 'Retiring early or cutting back on work.'

When it comes to early retirement or working less, it’s not just your finances you have to think about. How will you spend the time when you are no longer at work? Are you and your partner ready for this? Do you want to take up a hobby, start studying something new or do some volunteering? A lot of people still want to give something back to society once they retire and use their knowledge, experience and network to help others. There are plenty of opportunities available to you (in Dutch).

• Volunteering
  Around 40% of people in the Netherlands do volunteer work. Maybe helping out for a good cause has crossed your mind too. Charities operate in a wide range of areas, including environmental conservation, animal welfare and development aid. But organisations such as music and sports clubs and religious institutions are run by volunteers too.
• Serving as a trustee
  Most associations and foundations can only survive thanks to people who are willing to volunteer to run them. A trustee is an official position, meaning you are entrusted with representing and managing the organisation to ensure it functions properly.

It’s essential to be prepared for this new stage of your life, so make sure you have a good plan in place. If you’re thinking of retiring early or cutting back on your working hours, take advantage of a Financial Future Consultation with one of our advisers. It's free of charge for our Preferred Banking client with no strings attached.