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Can I retire at 55?

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After spending most of our lives working, it’s normal to start to ask ourselves questions like, when can I retire? Do I have enough in my pension? Can I retire at 55?

Retiring at 55 is a genuine possibility for some people. To retire at 55 is a goal that many people share, it allows you to enjoy life whilst you are still young, fit and healthy.

Whilst early retirement isn’t for everyone, anyone can do it.

In the UK, you don’t need to wait until the state pension age to retire. Providing you have enough savings and pension pot to fund your retirement lifestyle. You can retire at age 55. This is a viable option at age 55 because we are allowed access to our pension pot.

If you want to retire early, it’s important you have enough in your pension pot for a comfortable lifestyle. To find out if you can retire at 55, receive retirement planning advice as soon as you can. You might be able to retire much sooner than you think.

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How much do I need in my pension pots to retire at 55?

With the state pension age moving ever closer to 70, taking early retirement at 55* is often considered by many to be living the dream. By age 55, many are bored of their career, have reached their peak or just fancy taking things a bit easier by spending time with their families or travelling – is planning to retire at 55 an option?

Early retirement doesn’t just happen by itself and retirement planning and pension saving should start as early as possible. The question is, how much money do you need in your pension pot to retire at 55, well before the normal state pension age?

*The pension rules are always changing and in 2028, the ‘Pension Freedom Age’ is set to rise to 57. This minimum pension age is the age at which you can start to access money held in a pension. Therefore, wherever this article states 55, just assume this could also be 57+.

 

In terms of retirement planning, If you choose a retirement age of 55, you must be able to meet all of your income needs from private investments and/or the pension benefits from your pension pot and retirement accounts as you won’t be entitled to your state pension top-up until you reach ‘normal retirement age’ in your late 60s (the state pension age changes regularly and it depends on when you were born).

As discussed in our previous article that answers the general question of how much do I need in my pension pots to retire, we established that a pension pot of around £500,000 is typically sufficient to provide a retirement income of around £20,000 each year, which many will find acceptable and others may find this is not enough. It all depends on what your version of a comfortable retirement is. Many people will consider £1,000,000 a good pension pot target as this may be able to generate around £40,000 each year, which will provide a higher standard of living in retirement and provide a greater level of longevity, particularly if you retire at 55.

If you want to retire at 55, it’s important to understand that a pension, whether it’s a workplace pension or a personal pension (private pension), is just a form of investment with the aim of providing an income in your retirement (also known as retirement saving), ideally (but not always guaranteed to) for the whole of your life expectancy.

High income, final salary pension schemes, with excellent retirement benefits are few and far between these days, so it’s more important than ever to make the most of the pension benefits you have accrued over your working life. Examples of final salary pension schemes are a local government pension scheme and the NHS pension scheme.

With non-final salary pensions (also known as ‘defined contribution’ pensions), the capital sum in your pension fund can be used to purchase a secure income product like an annuity, or invested to give you more flexibility over the income you want based on the level of risk/reward you are comfortable with.

Can I retire at 55 with £300k?

On average a retired individual will spend £19,000 a year, whilst the average couple in retirement spends £25,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 15 years, and a couple in 12 years.

So, on paper, it doesn’t look like enough. But your motives and goals in retirement are likely completely different from the next person.

Only you know what you want to do in retirement. £300k might be perfectly adequate for your needs.

If you’re hoping to retire early on £300k, you need to understand how your lifestyle can look, then you can figure out the costings.

To properly plan for retirement, you need to do more than just have a specific amount in mind. You need to focus on what you want that amount to do for you.

Great lifestyle financial planning is about moving money around your timeline, so it’s in the right place when you need it and helps you achieve the lifestyle you want. And remember it’s about factoring in all your assets, not just what’s in your pension pot.

Can I retire at 55 with £500k in the UK?

On average a retired individual will spend £19,000 a year, whilst the average couple in retirement spends £25,000 a year. This means, if you retire at 55, £500k will fund an individual for 26 years and a couple for 20 years.

Given that the combined average life expectancy in the UK is 81, £500k should just about cover you as an individualhowever, a couple would have a 6-year shortfall.

But let’s look at things at little deeper.

The figure above represents an average. Average spend, average life span. So everyone’s personal circumstances will be different.

If you’re frugal, you may stretch your money further. And if you’re fit, healthy and live longer than average, you may need more in your pot.

If you want to have a lavish retirement, with regular holidays and money for hobbies, you might need to save a little more.

It’s important to remember that, with inflation, those average spend figures may go up. Also, that if you require care in your later years, your spend will grow considerably.

Put simply, £500k could be enough for a comfortable retirement at 55 in the UK. But it depends on your desired lifestyle, how long you live, and where you spend your later life.

Great lifestyle financial planning is about moving money around your timeline, so it’s in the right place when you need it and helps you achieve the lifestyle you want. And remember it’s about factoring in all your assets, not just what’s in your pension pot.

Can I retire with £700K?

On average a retired individual will spend £19,000 a year, whilst the average couple in retirement spends £25,000 a year. This means, if you retire at 55, £700k will fund an individual for 36 years and a couple for 28 years.

So, if you’ve retired at 55, that’ll take you comfortably to the UK’s combined average life expectancy of 81.

It’s important to remember that, with inflation, those average spend figures are likely to increase over time. Also, that if you require care in your later years, your spend will grow considerably.

Great lifestyle financial planning is about moving money around your timeline, so it’s in the right place when you need it and helps you achieve the lifestyle you want. And remember it’s about factoring in all your assets, not just what’s in your pension pot.

How can I increase my income in retirement?

Regardless of the type of pension scheme you are a member of, it’s important to remember that a pension is not the only form of income in retirement. Other forms of income in a flexible retirement include:

  • Other savings and investments (ISAs, shares, premium bonds, cash savings etc.).

  • Paid work or consultancy.

  • Income from your business.

  • Income from rental properties.

  • Renting out a room in your home.

Clearly, the more income you are able to generate and the lower your cost of living, the more comfortable retirement will be and the better chance you have of being able to retire at 55. Speaking to our clients, it’s very rare for anyone to say they have too much income in retirement.

Be warned though, people looking to increase their income in retirement are prime targets for pension scams, so be sure to seek financial advice from an authorised independent financial adviser before giving anyone access to your pension information.

How your income needs may change in retirement.

When looking at how much income you will need in retirement, especially if you retire at 55, it’s important to not underestimate your income needs when you retire. And for obvious reasons, many will not opt for retirement until their mortgage has been paid off to reduce their monthly commitments, or wait until they have reached state pension age for the additional income.

If you are thinking about early retirement at 55, have you considered the cost of ongoing care in the future as this cannot be overestimated?

Equally, with more time on your hands (especially if you retire at 55), you may wish to travel more often than you used to when you were tied to a job. Clearly, there is a cost implication for doing this and you will need an appropriate income to support your plans. It would be a real shame to retire at 55 only to end up staying at home every day because you can’t afford the activities you retired to do.

The best thing to do is calculate a detailed budget of the income you will need in retirement, decide if you have enough in your pension fund to do so and set the appropriate retirement savings goal.

Additional capital costs to consider if you take early retirement at 55.

Even though you may have paid off your mortgage and worked out a monthly budget for your living expenses, have you factored in the larger capital costs you may face if you opt for early retirement at 55? Including:

  • Repairs and replacement of your car, caravan or motorhome.

  • The cost of more frequent holidays.

  • Wedding gifts for the younger members of your family.

  • The cost of helping out other members of your family, such as with their education or getting started on the housing ladder.

  • Adapting your house for greater accessibility.

Will I need savings to retire?

Knowing you’ve money in the bank is going to make retiring early much easier. Like anything, you’re best to start saving early. Even if you save £600 a month for ten years, without interest, you’d have £72,000 ready for you to dip into when you need it. One of the common ways to fund retirement is by using equity releaseWe have a calculator that can work out exactly how much equity is available to be released from your home.

Having savings means you can use them to help prop up your retirement if your state pension or workplace pension doesn’t quite go as far as you need.

Can I retire at 55 and keep working?

 

Yes. Just because you’ve taken your private pension and decided to retire at 55 doesn’t mean you have to stop working.

Maybe you feel like you need to top up your pension by adding a few more years of part-time salary to it. Or maybe you want to access your pension pot at 55 and enjoy more free time, but you’re not ready to fully retire just yet.

Just because you choose to access your pension, doesn’t mean you HAVE to retire.

Many of our clients will do some freelance or consultancy work on the side to help top up their income each month.

What is the cost of early retirement at 55?

To retire successfully at 55, rather than say 65, there are a number of financial factors that will affect the overall balance of your retirement fund. You will need to overcome a combination of:

  1. 10 years when you won’t be making contributions into a pension. This means no employee contributions from your salary, no free employer contributions and no pension tax relief.

  2. 10 years reduced compound interest, which can make a massive difference in the final 10 years as the investment balances should be at their largest. A percentage of a small amount of money is a small amount of money, the same percentage of a much larger figure has a much greater financial impact – money makes money.

  3. Drawing down on your investments 10 years earlier, which may affect how long your funds will last.

Let’s use the example of a 40-year-old, earning £40,000 a year with a current total pension pot of £100,000. Retiring at 55 gives them 15 years left to build a retirement fund, whereas continuing to work until 65 means there are 25 years left to build a retirement fund.

£40,000 a year equates to a gross (pre-tax) income of £3,333 each month. If this person contributed 15% of their gross income via employee/employer/SIPP contributions and any tax relief they are entitled to claim, they will be adding about £500 each month to their retirement pot.

By plugging these figures into a compound interest calculator and assuming 8% annual growth, the £100,000 is forecast to become over £305,000 by the time they are 50 and nearly £486,000 by the time they are 55. However, add those extra ten years of contributions and compound interest into the mix and the pension pot is forecast to be worth in the region of £1.1 million by the time they reach 65. This is a great example of how compound interest really starts to kick in when you combine large balances, regular contributions and time.

Clearly, there is a definite impact on a pension pot if you choose to retire at 55 rather than 65, which is going to offer a reduced income. The obvious thing to do when looking at these figures is to just contribute more each month from age 40.

However, by doubling the monthly contributions from £500 a month to £1,000 in the compound interest calculator, the pension pot is forecast to increase fairly modestly in the short-term to be £396,000 by age 50 and will reach £654,000 by age 55. However, the final ten years of compound interest would increase the fund to an unbelievable £1.5 million by age 65 if you chose to delay retirement, keep the funds invested and keep contributing.

As a result, the cost of early retirement, in this case, is about £650,000 in sacrificed capital if the monthly contribution was £500 and £810,000 if they contributed £1,000 each month until age 65.

Applying the 4% annual withdrawal rate that balances preservation of capital with income (although not guaranteed) – that £650,000 of missed opportunity is worth about £26,000 in gross annual retirement income and the £810,000 is worth about £32,400 in reduced retirement income each year. Both of these figures clearly illustrate the financial cost of taking early retirement at 55.

In both of these illustrations, waiting the extra 10 years to retire at 65 gives you over double the monthly gross income in retirement.

Age

Monthly Contribution

Pension Pot

Annual Income at 4%

Monthly Income at 4%

55

£500

£486,000

£19,440

£1,620

55

£1,000

£654,000

£26,160

£2,180

65

£500

£1,139,000

£45,560

£3,797

65

£1,000

£1,464,000

£58,560

£4,880

The financial cost of retiring at 55 if you had £100k at age 40.

Consider taking a phased approach to retirement at 55.

 

As we’ve all found over the past couple of years, working from home is possible for many and taking a phased approach to retirement is a great option to consider. We’ve spoken to many clients that decided to take things a little easier in their 50s and have reduced their work to 3-days a week. This gives them a long weekend every weekend for travel, plus they continue to earn income, contribute to their pension and continue to get the benefits of both sick pay, paid leave and, where offered, private healthcare.

Even if you decide to change jobs and start work in a completely different field, you may find learning new skills or an easier pace of life enjoyable, with the added bonus of giving you a reason to get up in the morning alongside social contact. Retirement can be isolating.

How to retire at 55 - 8 steps to early retirement.

If you are still keen to retire early at 55 and you know the financial impact it may have on you, work through our checklist to get yourself in the best possible financial position.

  1. Start making a regular pension contribution as early as you can – every year counts.

  2. Contribute as much as you can every month – you can add to a private pension (like a personal pension or a SIPP) each month and automatically claim the tax relief.

  3. Make sure you select jobs where your employer contributes generously to your pension (this is free money after all).

  4. Work with a financial adviser to make sure your pension is invested in accordance with growth requirements and risk tolerance.

  5. Find the details of any private pensions (defined contribution ones) you may have from previous employers and transfer them into your main account (although be careful to check you won’t lose any valuable benefits by doing this – the best thing to do is speak to a an independent financial adviser).

  6. Consider how your capital is spread between pensions and ISAs. Moving cash into your pension allows you to claim the tax relief, however, the income and capital gains from an ISA are tax-free.

  7. Maximise passive income-producing investments.

  8. Regularly meet your financial adviser to ensure you are on track to retire at 55.

 

Money isn’t everything.

 

From a purely financial perspective, unless you have amassed a significant retirement fund by age 55, taking early retirement will cause you to have a lower level of income when compared to working/saving for another 10 years. However, money isn’t everything and the extra 10 years of retirement could be a wonderful addition to your life. As ever, there is a balance to be struck between work and life, but you do need to pay attention to the figures and take every opportunity to save and invest over your working life. The sooner you prepare and plan for early retirement, the better chance you have of making the figures work for you.

What is a good pension pot at 55?

you’re hoping to retire at 55, a good pension pot is somewhere between £500k-£700k for a couple and £450k-£550k for an individual.

You’ll need enough money to live comfortably for the rest of your days. Based on the average life expectancy in the UK, that’s likely to be around thirty years after retiring at 55.

With the average couple spending £25k per year for a comfortable retirement, your ideal pension pot is going to depend on the lifestyle you want to have in retirement.

However, it’s important to remember your income in retirement will likely come from a number or sources, not just your combined pension pots, this could be things like additional savings, investments, income from rental properties and your State Pension. When all these are looked at together you may see you’ve more than enough to afford the lifestyle you want.

To plan for a comfortable retirement, you need a realistic budget for all your living expenses. And those expenses will differ from person to person.

For example:

Your home: you might have paid off your home or still make monthly payments

Your family: you might have dependents who rely on your support

Your lifestyle: you may have a frugal or more lavish lifestyle

Your retirement plans: you might want to continue with your current lifestyle or make a major change (round the world trip, anyone?)

Your health: do you know of any health conditions that could affect your later life care and costs

This is why it’s important to speak to an Independent financial adviser – authorised and regulated by the Financial Conduct Authority – as soon as you can. They’ll help you work out how much you need to make your retirement dreams a reality.

Consider taking a phased approach to retirement at 55.

 

As we’ve all found over the past couple of years, working from home is possible for many and taking a phased approach to retirement is a great option to consider. We’ve spoken to many clients that decided to take things a little easier in their 50s and have reduced their work to 3-days a week. This gives them a long weekend every weekend for travel, plus they continue to earn income, contribute to their pension and continue to get the benefits of both sick pay, paid leave and, where offered, private healthcare.

Even if you decide to change jobs and start work in a completely different field, you may find learning new skills or an easier pace of life enjoyable, with the added bonus of giving you a reason to get up in the morning alongside social contact. Retirement can be isolating.

How to retire at 55 - 8 steps to early retirement.

If you are still keen to retire early at 55 and you know the financial impact it may have on you, work through our checklist to get yourself in the best possible financial position.

  1. Start making a regular pension contribution as early as you can – every year counts.

  2. Contribute as much as you can every month – you can add to a private pension (like a personal pension or a SIPP) each month and automatically claim the tax relief.

  3. Make sure you select jobs where your employer contributes generously to your pension (this is free money after all).

  4. Work with a financial adviser to make sure your pension is invested in accordance with growth requirements and risk tolerance.

  5. Find the details of any private pensions (defined contribution ones) you may have from previous employers and transfer them into your main account (although be careful to check you won’t lose any valuable benefits by doing this – the best thing to do is speak to a an independent financial adviser).

  6. Consider how your capital is spread between pensions and ISAs. Moving cash into your pension allows you to claim the tax relief, however, the income and capital gains from an ISA are tax-free.

  7. Maximise passive income-producing investments.

  8. Regularly meet your financial adviser to ensure you are on track to retire at 55.

 

Money isn’t everything.

 

From a purely financial perspective, unless you have amassed a significant retirement fund by age 55, taking early retirement will cause you to have a lower level of income when compared to working/saving for another 10 years. However, money isn’t everything and the extra 10 years of retirement could be a wonderful addition to your life. As ever, there is a balance to be struck between work and life, but you do need to pay attention to the figures and take every opportunity to save and invest over your working life. The sooner you prepare and plan for early retirement, the better chance you have of making the figures work for you.

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