For many people, 60 feels like the ideal age to retire. You’re young enough to hopefully enjoy plenty of active years ahead, but old enough to start thinking seriously about swapping work deadlines for a little more freedom.
But there’s usually one big question standing in the way:
Can I actually afford to retire at 60?
It’s a very different question from “How much do I need to retire comfortably?”
You can look at average retirement figures and suggested income levels, but they don’t tell you whether your pension, savings and investments can support your lifestyle for potentially 30 years or more.
That’s where cashflow modelling can be incredibly useful.
Rather than working towards an arbitrary retirement number, cashflow modelling takes the money and assets you actually have, combines them with what you expect to spend, and asks: What happens if I retire at 60?
And, importantly, what happens if life doesn’t go exactly to plan?
Start with the retirement you actually want
Before looking at pension values and investment accounts, it helps to start with something much more interesting: what do you want retirement to look like?
How much do you expect to spend each month?
Some costs may fall once you stop working. You might no longer have commuting expenses, workplace lunches or pension contributions. Your mortgage may have been repaid.
Other costs could increase.
Perhaps you want to travel more, eat out regularly, help your children or grandchildren, replace the car every few years or finally tackle those home improvements you’ve been putting off.
Retirement spending isn’t necessarily the same every year either. You might spend considerably more during the first ten years of retirement while you’re active and travelling, before your spending gradually changes later in life.
Cashflow modelling can build these different stages into your plan rather than assuming you’ll spend exactly the same amount every year.
Next, what have you actually got?
Once you have an idea of your desired lifestyle, the next step is bringing together everything that could help fund it.
That could include:
- workplace and personal pensions
- ISAs and other investments
- cash savings
- property or rental income
- your State Pension
- your spouse or partner’s pensions and assets
- other income or assets you expect to receive.
This gives you a much clearer picture of your overall financial position.
Someone with a £500,000 pension and very little outside it could have a very different retirement plan from someone with the same pension plus substantial ISA savings, cash and other assets.
It’s the whole picture that matters.
What happens between 60 and your State Pension?
This is an important part of retiring early.
If you stop working at 60 but aren’t due to receive your State Pension for several more years, your existing pensions, savings and investments may need to provide all of your income during that period.
That doesn’t necessarily mean retiring at 60 isn’t affordable.
It simply means you need a plan for bridging the gap.
Cashflow modelling can illustrate how much you might need to withdraw during these early years and what happens once State Pension income begins.
It can also help answer questions such as:
- Could I retire at 60, or would working until 62 make a significant difference?
- What if I reduced my hours at 58 and fully retired at 63?
- Could I afford to retire now if I spent slightly less during the first few years?
Sometimes a relatively small change to retirement age, spending or working patterns can make a surprisingly large difference to the long-term picture.
The big question: will my money last?
Nobody wants to spend the first 20 years of retirement worrying about running out of money in the next ten.
Cashflow modelling projects your finances forward, using assumptions about factors such as investment returns, inflation, income, expenditure and life expectancy.
It can show whether your current assets appear sufficient to support your planned lifestyle over the long term.
If the numbers suggest a potential shortfall, finding that out before retiring gives you options.
You might decide to work slightly longer, increase pension contributions while you’re still earning, adjust your expected spending or rethink how your assets will be used.
And if the plan shows that you’re in a strong financial position, that can be equally valuable.
You may discover that retirement at 60 is more achievable than you thought.
Don’t forget inflation
£3,000 a month today won’t buy the same lifestyle in 10, 20 or 30 years.
That sounds obvious, but inflation can be easy to underestimate when planning retirement.
If you’re retiring at 60, your money may need to support you for several decades. Even relatively modest inflation can significantly increase the income you’ll need later.
A good cashflow model doesn’t simply assume that today’s spending continues indefinitely. It can increase future expenditure to reflect inflation and show the effect on your long-term finances.
What if markets fall just after you retire?
Investment returns don’t arrive in a nice, predictable straight line.
Markets rise and fall, and one concern for people approaching retirement is what would happen if investments suffered a significant downturn shortly after they stopped working.
Cashflow modelling can test different scenarios.
For example, what happens to your plan if markets fall during the early years of retirement? Can you still maintain your planned income? Do you have sufficient cash reserves? Would reducing withdrawals temporarily help?
The purpose isn’t to predict when the next market downturn will happen. Nobody can reliably do that.
It’s about understanding whether your retirement plan has enough flexibility to cope if difficult markets arrive at an inconvenient time.
And what about the things you haven’t planned for?
Life rarely follows a spreadsheet perfectly.
You might need a new roof. Your car could need replacing sooner than expected. You might want to help a child with a house deposit or support grandchildren through university.
Later in retirement, care or additional support could become a consideration.
You can’t predict every expense, but you can build allowances and ‘what if?’ scenarios into a cashflow plan.
For example:
What if we need £30,000 for home improvements at 65?
What if we want to give our children £50,000?
What happens if our annual spending is £5,000 higher than expected?
Testing these scenarios can show how much flexibility exists within your finances.
Retirement doesn’t have to happen overnight
There’s also no rule saying you need to go from working five days a week to fully retired on your 60th birthday.
Phased retirement is becoming an attractive option for many people.
You might reduce your hours, move into consultancy or work two or three days a week for several years.
Even a relatively modest earned income can reduce the amount you need to withdraw from pensions and investments during the early years of retirement.
Cashflow modelling allows you to compare these options side by side.
You could model full retirement at 60 against working three days a week until 63, for example, and see what difference each scenario makes to your longer-term finances.
Where should your retirement income come from?
Having enough money is only part of the retirement planning puzzle.
How you take it matters too.
If you have pensions, ISAs, cash and other investments, simply withdrawing money from whichever account is easiest may not be the most tax-efficient approach.
The order and timing of withdrawals can affect the amount of tax you pay and how long different assets remain invested.
Depending on your circumstances, retirement income could involve a combination of pension withdrawals, tax-free pension cash, ISA withdrawals, cash savings and other income.
The aim isn’t simply to minimise tax this year. It’s to consider how withdrawals fit into your long-term retirement and tax position.
A cashflow plan isn’t a crystal ball
One of the most important things to understand about cashflow modelling is that it can’t predict your future.
The assumptions used won’t turn out to be exactly right.
Investment markets will behave differently. Inflation will change. Tax rules could change. Your spending may be higher or lower than expected. Your family circumstances might alter.
And you might simply change your mind about what you want from retirement.
That’s why cashflow modelling is most useful as an ongoing planning tool rather than a one-off forecast.
Your plan can be reviewed regularly and updated to reflect what has actually happened.
If your investments have performed differently from expected, the model can be updated.
If you decide you want to move house, it can be updated.
If you inherit money, start spending more, decide to help your family financially or want to retire earlier, it can be updated.
The question isn’t just “Can I afford to retire at 60 today?”
It’s also “Am I still on track?”
So, can you afford to retire at 60?
There’s no universal answer.
Two people could have exactly the same pension pot and receive completely different answers because their spending, other assets, State Pension entitlement, family circumstances and retirement plans are different.
That’s why focusing on a single ‘retirement number’ can only tell you so much.
Cashflow modelling makes the conversation personal.
Instead of asking:
“How much should someone have to retire at 60?”
You can ask:
“Given the pensions, savings and assets I actually have, and the lifestyle I actually want, what happens if I retire at 60?”
Then you can test 61. Or 62. Or phased retirement. You can add a market downturn, higher inflation, a big holiday, a new car or financial help for the family.
The result isn’t a guarantee of what will happen.
It’s a clearer picture of what’s possible, where the risks are and what decisions you may need to make.
And if you’re approaching 60 and wondering whether you can finally finish work, that can be far more useful than simply being told you need to reach a particular number.
Thinking about retiring at 60?
If retirement is starting to feel less like a distant ambition and more like a decision you actually need to make, this can be a good time to put your finances to the test.
At Lazenby’s Financial Services, we can bring together your pensions, savings, investments, expected expenditure and future income to help you understand what retirement could look like — and test different scenarios before you make the leap.
Because retirement planning isn’t simply about building the biggest pension pot possible.
It’s about knowing whether the money you’ve built can support the life you want to live — and giving you the confidence to make informed decisions about what comes next.
Cashflow modelling is based on assumptions and is not a guarantee of future outcomes. Investments can fall as well as rise, and tax treatment depends on individual circumstances and may change in the future.
