Fixing Retirement Anxiety With A Gap Year

Image: Paris Skyline - Credit: Alexander Kagan - Unsplash

A Client Meeting

I visited my clients, Andy and Jo* recently. It was a pretty hectic morning when I arrived at their North London home as their eldest daughter, Katie* had recently graduated from Durham University and was just about to embark on a gap year.

Katie is due to fly out to Indonesia in a week or so to volunteer with a marine conservation charity for three months. The plan is then to backpack around South East Asia for a few months before heading to Australia and New Zealand for six months. Andy and Jo were themselves planning a couple of weeks’ holiday in Australia early next year when they would arrange to meet up with Katie.

Katie was busy ordering last minute items to ensure she had everything she needed for the trip.

We were meeting for Andy and Jo’s scheduled annual review meeting which was an opportunity to review their retirement plans. Whilst they were super excited for Katie, they were somewhat anxious about their own retirement. Andy and Jo are both 56 and one of their objectives is to retire before age 60 so they can enjoy themselves whilst they are in good health and have lots of energy.

Both have good jobs and over the last several years have made good progress in saving into pensions, ISAs and General Investment Accounts. Their financial plan demonstrates that they will have accumulated sufficient capital to be able to retire at age 58.

Their financial plan factors in goals such as travel and living abroad for a few months. Jo has always wanted to live in Paris after spending some time there whilst a student. We have factored in the cost of a three month Airbnb rental plus living costs. Andy is excited about the idea and both have been brushing up on their French language skills. If they enjoy the experience, they might look to purchase a small flat there, after all it is only a few hours from London by Eurostar. We have built this as a ‘what-if’ scenario into their financial plan and, again, this goal is readily achievable.

We have factored everything into the financial plan and, using conservative assumptions, everything looks fine. Both Andy and Jo have always intended to downsize in their late sixties, early seventies so they can spend significant amounts of their accumulated capital during the early part of their retirement knowing that they would free up further capital in later life.

The plan was sensible and looked good financially but Andy and Jo were worried about making a mistake:

“What if we hate travelling or Paris turns out to be a terrible idea?”
“Should we work just for a few more years and save some more money just in case?”

We were sat around the kitchen table and at this point Katie breezed in waving a mosquito net that had just been delivered. I asked Katie how she was feeling about her forthcoming trip and she explained that she was feeling a mixture of excitement and anxiety – mostly excitement as she had been planning the gap year for a while.

I asked what would happen if things didn’t work out, for example, if she didn’t enjoy the volunteering work or the backpacking around South East Asia? Katie explained that she had a number of back up plans – if she didn’t like the volunteer work she would go to South East Asia earlier. If she didn’t enjoy South East Asia, she would head to Australia earlier. If she hated the whole thing, she would just come home.

I looked at Andy and Jo who both acknowledged that they didn’t really want to work another couple of years. If they didn’t enjoy travelling or living in Paris, like Katie, they could just come home.

Retirement Anxiety

Most people suffer from some form of retirement anxiety even when they have significant wealth. Too often we look at social media and see some idealised version of retirement.

The thing is when we are in our twenties or even in our thirties, it is accepted that we don’t have things all figured out, however, when we are in our fifties and sixties the exact opposite is the case and we often think that we have to have everything sorted.

Retirement at age 58, which is Andy and Jo’s goal, could last thirty years or more. It is therefore okay not to have retirement all figured out.

So why not treat the first year or two of retirement like a gap year – travel the world, spend some time living in a different country, go back to university or volunteer for a cause you are passionate about. If it doesn’t work out, it doesn’t matter, if it does, then that’s fantastic.

A gap year can be used to find out what it is you most enjoy in retirement as well as the things you thought you might like but actually, it turns out that you don’t.

For Andy and Jo, we have ensured that their financial plan has sufficient flexibility to enable them to do the things they want. We have also ensured that, using conservative assumptions, they will achieve financial independence by age 58 and have more than enough to be able to achieve their retirement goals.

Following our meeting, I updated Andy and Jo’s financial plan and renamed the period between ages 58 and 60 as ‘Gap Year Adventures’.

*names have been changed.