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Can I retire early?

Retiring early can give you that change of lifestyle you’ve been craving, open doors to new experiences and potentially improve your health. But there are financial consequences to stopping work in your 50s.

What is the financial impact of early retirement?

Traditionally, people retired between the ages of 60 and 65, but there’s no set age that you need to give up work. In fact, anyone with a pension pot can access it from age 55 (57 from 2028) unless your plan has a protected lower pension age.

Retiring early requires some careful planning. It can put significant pressure on your funds as your new income is likely to be less than your pre-retirement earnings.

How much money will I need in retirement?

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You might have various sources of income for your retirement ranging from your personal and/or workplace pension, the State Pension, investments and other savings. Reviewing your financial situation and determining how much money you need to live a comfortable life in retirement is an important first step.

Your State Pension will not be paid until you reach age 67 so if you stop working before then, you will be relying on funds from savings, pensions and any other assets for more than a decade.

The impact of inflation

Already at a 40 year high, inflation in the UK is set to reach 11% later in 2022 and is seriously eroding the buying power of money for the foreseeable future.

How to assess your financial situation vs your early retirement plans

Understanding your individual financial situation can make a big difference when it comes to making decisions around your retirement savings. Fully assessing your personal finances can help give you a clearer picture of whether early retirement is feasible.

Early retirement checklist

How do you plan for a varied retirement?

If you’re planning to retire early, think about what type of lifestyle you want to enjoy in later life. This will then help you determine what you are saving towards. You might plan to travel, embark on a journey of further education or simply spend more time with loved ones – whatever you decide to do, you are going to have demands on your retirement income.

When you’re reviewing your financial plans, it is worth looking at the first early years of retirement as something separate, and budget to spend more for example on multiple holidays, dinners out and trips to the theatre etc. Then take a look at how your lifestyle may modify as you slow down in later life. There may be fewer trips and holidays to take, but there could be increased care costs.

Taking early retirement means that you almost have to plan for two different retirements. One that caters to the immediate future, where you’re likely to still be very active and one where a slower pace of life comes into play. Each will have a different focus and therefore different demands on your money.

How many years do you expect to be retired?

There are obviously no guarantees on how long any of us will live, but when it comes to retirement planning, you’ll need to make an informed guess. It’s worth considering family history, as well as factors such as your gender and geographical region. If you expect to live to around 85, but plan to retire at 55, you’ll need to save enough to support yourself for 30 years – but don’t forget, you may live a lot longer than you expect, and you’re likely to want leave something for your loved ones.

How much will your state pension be?

The State Pension rules changed radically on 6 April 2016, for men born on or after 6 April 1951 and women born on or after 6 April 1953. There is a ‘single tier’ pension payment for people in this age group with a ‘full level’. In 2022/23, the full level of the new State Pension increased by 3.1% taking it to £185.15 a week, or £9,627.80 a year.

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If you reached state pension age before 6 April 2016, the changes don’t affect you. If you are married, and both you and your partner have built up a full state pension, you will receive double this amount in 2022/23 – so £283.70 a week.

How much do you have in your private pension pot?

As the State Pension is not really enough to live on, the likelihood is that workplace or private pensions will make up a significant part of your retirement income. When you retire, you have several options:

  • Buy an annuity, which gives you a regular retirement income for either a set period, or for life,
  • Keep your savings in your pension pot and ‘draw down’ what you need, as and when you need it.
  • Keep your pot invested if you do not need the money straightaway

You will need to track down all of your pension pots and ask for a pension forecast. Estimate how much you can achieve via a drawdown, an annuity or a combination of both. Remember, the value of any investments can fall as well as rise and isn’t guaranteed.

How can you ensure your pension pot will last?

Having an understanding of your retirement income and outgoings can help you to plan for the future. Perhaps you’ve reviewed your finances and realised you can retire early, or you might decide to wait a few more years to help you boost your pension pot that bit more.

The key thing to understand is that your retirement is completely personal, and the amount you will need will depend on your specific circumstances and expectations. If you’re in any doubt about the financial impact of early retirement, you should obtain professional financial advice.

The main measures enabling people to think about retiring early

  • 32% – Having a defined benefit (final salary) pension
  • 30% – Paying off one’s mortgage
  • 29% – Saving little and often
  • 19% – Saving extra whenever receiving a pay rise or bonus
  • 16% – Receiving a redundancy payout
  • 14% – Receiving an inheritance

Taking professional, expert financial advice is key to making your early retirement plan a reality

While happiness soars in retirement, many people find their finances take the strain when they retire early and money worries are one of the biggest factors resulting in people returning to work.

If you aspire to retire early, it’s vital you plan your finances to be sustainable for the long term and our expert team of Financial Advisers are here to help you every step of the way.

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