Until recently, most people had a fixed idea of how old they would be when they retired. The state retirement age was set at 65 for men, 60 for women. Only a few die-hards worked beyond that. These days, the answer isn't as clear cut.

When is state retirement Age?

First, the state retirement age is steadily increasing. For women, the process has already started. Their retirement age will steadily rise to 65 by 2018, to bring them into line with men. By 2020, the state pension age will be hiked to 66 for both sexes. And that's only the start. The state pension age will continue rising to 67 from 2026. Thereafter, it will be linked to rising life expectancy, which could see it rise to 68 in the mid-2030s, and 69 a decade later.

Saving money alters retirement age

In practice, the process has already begun. More than one million Britons already work beyond age 65. Many work on willingly, to stay active and social. Others have no choice. You're absolutely free to stop working before the state pension age, but only if you have saved enough money to fund a decent lifestyle in retirement. For most of us, that means building a large workplace or personal pension, backed up by other forms of investments, such as tax-efficient ISAs. This is particularly important if you want to retire at a relatively early age, because your money will have to stretch much further.

When should I retire?

If you want to retire at 60, for example, each £100,000 you have in your pension pot will only buy you around £5,500 of annual income. So you would need £500,000 to generate £25,000 a year. That would give you the equivalent of the average national salary, currently £26,500.

  • If you waited until 65, each £100,000 of pension would generate around £6,000 a year, that's more. The truth is that the vast majority of us can't afford to retire until we get our state pension. That will be worth around £7,000 a year from 2016, when the new flat-rate pension will be launched.
  • If you want to carry on working, you might want to consider deferring your state pension. For each year you delay taking it, you get a pension increase of 10.4%. But you have to live for another 10 years after you've taken your pension, to make up for the income you lose by your initial refusal to take that income.

So when can you afford to retire? For most of us, the answer will be later than we expect. The younger you are, the longer you will have to work. If you don't like the idea, start investing for your future now.

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