Important information - investment values and income from investments can go down as well as up, so you may get back less than you invest.
Q. I am in my late 40s, married, with a young son. I currently have more than £1m across my pension and ISA and am mortgage free. My pension has grown significantly on the back of strong stock market performance, but I’m concerned its value could fall sharply before I reach retirement.
I’ve experienced several major health scares recently. Separately, I’m concerned that my sector may be disrupted by artificial intelligence (AI) and I could be made redundant.
As a result, I am wondering whether it would be wiser to prioritise enjoying life sooner rather than continuing to build a larger pension pot.
I have also been considering whether to move all or part of my pensions into cash or bonds to protect it from a significant market downturn. Would that be a good idea?
A. I’m very sorry to hear about your recent health problems. It’s completely understandable that, after experiencing significant health issues, you would want to reassess your priorities. The key question is: can you afford to retire before 50?
There are two important numbers to establish first: how much you expect to spend each year in retirement, and how much you have available to fund it.
You say you have more than £1m across your pension and ISA. It would be important to establish how much is in the latter. If you want to retire early, those ISA funds will be very important because most people cannot access their pension until the normal minimum pension age (NMPA) – currently 55 but rising to 57 from 2028. Some people have a protected pension age allowing earlier access, so check with your scheme.
You may also be able to access your pension earlier if your health means you can no longer work. This is known as ill-health retirement and your pension provider can tell you whether you qualify. Separately, if you’re under 75 and have a life expectancy of less than a year, you might be able to take all your pension as a tax-free lump sum.
I assumed from your description of your pension pot that this is a defined contribution pension. If it's a defined benefit (or “final salary”) pension, the considerations would be quite different.
To illustrate how the numbers could stack up, I used our cash flow modelling tool to look at a hypothetical example of someone retiring at 49 with £700,000 in their pension and £300,000 in an ISA. These figures are purely illustrative rather than necessarily reflecting your circumstances. I also assumed that:
- the person spends £30,000 a year, rising with inflation
- they receive the full State Pension from their State Pension Age
- inflation averages 2.5%
- their investments are in a balanced portfolio returning 6.06% a year before account fees of 0.41%
Our model suggests, on these assumptions, they may not run out of money before 100 and could still have the equivalent of more than £1.3m in today’s money remaining at that point. They could potentially increase their spending to £40,000 per year, although they risk exhausting their pot by age 92. This assumes they don't qualify for ill-health retirement and so need to rely on their ISA investments until age 57. Remember: these are forecasts, not guarantees.
Your actual spending could also look quite different. Your son is young, so you may want to budget for significant future costs such as education or helping him onto the property ladder. Poor health can potentially increase expenditure too.
It is also worth considering what would happen financially if your health deteriorated further or you died.
Before leaving work, check what protection your employer provides. This could include death-in-service cover, income protection, critical illness cover, and enhanced sick pay, which you may lose when you leave. Check any personal life insurance too. If your family would struggle financially if you died, you could investigate additional cover, although your medical history is likely to affect its availability and price. Make sure your pension beneficiary nominations and will are also up to date.
You are understandably concerned about a market fall affecting your pension. Start by establishing exactly how it is invested. Workplace pensions commonly have a default investment strategy, but yours may offer alternative funds. Check whether it uses “lifestyling”, which automatically reduces investment risk as you approach your selected retirement age, and make sure the age recorded by the scheme reflects your plans.
Some people do reduce investment risk as retirement approaches. But when you plan to access the money matters. If you cannot access your pension until 57, you could still have several years before drawing on it. And if your health proves better than feared, you could need your investments to support you for 40 years or more. Moving too much into cash too early could leave your money struggling to keep pace with inflation.
Your ISA may need a different approach if you intend to spend it much sooner. Some retirees keep several years’ planned withdrawals in cash so they are less likely to have to sell investments following a market fall.
- Get £250 to £2,500 cashback when you apply to transfer or add a lump sum into our SIPP. Minimum value exclusions, T&Cs apply - offer ends on 9 November 2026.
Finally, you mentioned concerns about redundancy. Before resigning, find out what you could receive if you were made redundant. Leaving voluntarily could mean giving up a potentially valuable redundancy package as well as employee benefits. Retirement doesn’t have to be all or nothing either. You could explore going part-time or, if you are made redundant, finding a lower-stress role that gives you more time with your family while continuing to bring in some income.
It is also worth remembering that returning to the workforce later may be harder than expected should you want or need to. Our Longer Working Lives Index recently highlighted the challenges facing workers in midlife and beyond, with the UK ranking bottom in the G7 for supporting over-55s to remain in work.
Given the sums involved and the interaction between your health, family, pension and employment benefits, this is one situation where professional financial advice could be particularly valuable.
The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online at www.moneyhelper.org.uk or over the telephone on 0800 138 3944.
Our retirement specialists can provide you with free guidance to help you with your decisions. They can also provide advice and help you select products though this will have a charge.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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