Early retirement has many advantages. You can change your lifestyle, access more time with friends and family members, improve your health and wellbeing and enjoy brand-new experiences. However, stopping employment early carries some financial consequences.
People traditionally retire somewhere between age 60 and 65; however, there is no formal age when you must leave the workplace. For example, people with a pension pot can currently access it at age 55, and from 57 in 2028.
Stopping working early needs well-considered planning, as it can put financial pressure on you when your retirement income is less than your earnings when employed. Here, we run through six simple tips that can help you fulfil your plans for an early retirement.
Study your present financial situation
Having a grasp on your present fiscal situation makes a considerable difference when weighing up your decisions about retirement savings. Having a full view of your personal finances helps you see if early retirement is financially feasible.
You may have several sources of income in retirement, like personal and workplace pensions, the State Pension, savings and investments. Reviewing your situation and working out how much you need to enjoy a comfortable retirement is the best place to start.
Remember that the State Pension isn’t presently paid until people are 67, so when you stop working earlier, you’ll depend on funds from other assets until then.
Consider the retired life you seek
If you want to retire early, consider the lifestyle you desire when you stop working. This can help you work out what you’re saving for.
You might aim to travel, get a further education, start a hobby, renovate or simply take time to spend with those you love, but regardless, the way you spend retirement will put demands on your income.
When making future financial plans, consider looking at your early years of your retirement as a separate period when you may spend more on social activities. Budget for enjoying yourself on holidays, trips and dining out. Then, consider that your lifestyle is likely to slow as you age, reducing such costs. It can be good practise to also factor in increased costs for health issues and care in the later stages of retirement.
In simple terms, if you want to retire early, understand that retirement has different stages, and each has its own financial demands.
Work out the duration of your retirement
While there is no way anyone can know how long they will live, retirement plans require us to make an educated guess.
Consider your family history, geographic region and gender. If you anticipate you will live to about 85 and plan on retiring at 50, you must save sufficient funds to support yourself for around 35 years. Remember this is an estimate – you could also live much longer, and might wish to pass on wealth to those you leave behind.
Calculate your State Pension payment
In 2016, the State Pension rules radically changed for women who were born on or after April 6, 1953, and men who were born on or after April 6, 1951.People in this category get a ‘single tier’ payment with a ‘full level’.
In the financial year 2022 – 2023, the full level increased by 3.1 per cent, rising to £185.15 a week, or £9,627.80 a year.
In April 2024, the state pension had an 8.5 per cent rise due to the triple lock, increasing to £221.20 a week.
Assess your workplace and private pension pots
With the State Pension inadequate to live on, a private or workplace pension will likely form a substantial element of your income in retirement.
When retiring, you have multiple options. You can keep savings in the pension pot and draw money out as and when required; you can purchase an annuity and receive a regular income in retirement; or, if you don’t need the money immediately, you can keep your pension pot invested.
Take expert financial advice from retirement planning specialists
Trying to assess whether an early retirement is possible for your individual situation isn’t always easy. Retirement planning specialists can help you achieve your goal and offer bespoke advice and a practical road map that prepares you for stopping working early.
After gaining a full understanding of your present financials and future plans, retirement experts can suggest strategies that help your money work harder for you, from tax-efficient solutions to well-balanced investment portfolios.
For expert retirement planning in Cheshire, connect with our dedicated team of specialists at Hartey Wealth Management. Reach out now to discuss your aims of an early retirement.
