Want to retire early?
HERE’S WHAT YOU NEED TO KNOW…
Having the freedom to spend more time doing the things you enjoy with the people you love is a common goal, which is why retiring early sounds so appealing.
So how can you ensure you are financially secure enough to retire when you want? Here’s our guide:
1. CRUNCHING THE NUMBERS
First you need to work out what you need to live on once your monthly salary disappears. There is no one-size-fits-all for finding that all-important number. Estimates1 suggest that a single person would need £10,900 a year for a minimum standard of living in retirement, £20,800 a year for a moderate form, and £33,600 to feel comfortable.
For couples, the per person amount is lower than that, reflecting shared living costs: the Pensions and Lifetime Savings Associate (PLSA) says a minimum standard would set a couple back £16,700, a moderate standard would be £30,600, and a comfortable standard £49,700.
Your own numbers could differ greatly from this, which is where forward planning with a
professional can help.
2. START SAVING EARLY
One way to boost your chances of having enough to retire early is to start saving in a pension as soon as possible. This means that your contributions have more time in the market to grow and benefit from the magic of compounding. In simple terms this is where your money earns a return in the first year, and in the second year both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns
achieved. This snowball effect is called compound growth, which can seriously turbocharge your returns and help you reach your goal faster.
3. INCREASE YOUR MONTHLY CONTRIBUTIONS
It’s easy to get stuck in a rut with your savings and keep
on saving the same amount for years on end. This is
particularly true if you’re in a workplace pension and
your salary has been at the same level for a number of
years. Review the level of your contributions and see if
there’s scope to increase them.
“If you haven’t looked at the way your workplace pension is invested, now is the time.”
4. START A BOOSTER PENSION
If you’ve only been saving in a workplace scheme you can start a self-invested personal pension (SIPP). It’s never too late because the tax breaks on contributions are worth having no matter what your age. Not only that, when you get to retirement it’s likely that you will slide into a lower income tax band, so you’ll be better off again when the time comes to start drawing on your savings.
5. REVIEW YOUR INVESTMENTS
How your money is invested is an important factor in the returns you generate. If you haven’t looked at the way your workplace pension is invested, now is the time. You can ask your scheme provider for a breakdown. If you have a private pension too and haven’t reviewed your investment selection for a while, it’s time to do so. You may need to adjust your portfolio to take more risk or diversify a little more
6. CHECK COSTS
Investing isn’t free. All pensions, whether workplace or private, come with charges. Make sure you’re getting value for money by checking you’re not paying over the odds.
7. UNDERSTAND PENSION RULES
Retire too early, and you won’t actually be able to access your pension. You can currently only access your pension from age 55, rising to 57 in 20282 . If you’re aiming to retire earlier than that age, you’ll need to call on ISA savings or investments, or income from other sources, for example, rent if you are a property landlord.
If you’re self-employed and one of the 69% who don’t pay into a pension3 then now is the time to start. Depending on your existing arrangements you may well need to start paying in substantial amounts to play catch up and reach your goal. Paying into a pension will also save on your self-assessment tax bill as a higher rate taxpayer
8. IT PAYS TO TALK
An adviser has access to tools that can give you a strong idea about the level of contributions needed to reach your goal of the income you want each year. They can look at what you have already and what you might need to plug the gap and allow you to retire when you want.