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Contact@leafifa.co.uk
After a long working life many wonder if they have to wait until state pension age to retire, or if they can achieve it earlier, possibly even by 55. Although retiring early has some obvious benefits, not least no more work and more leisure time, it also has some risks and potential pitfalls.
There is a lot to consider before thinking about retirement, with the main concern being if you have enough put aside to last your retirement years, especially as after you stop work it gets increasing difficult to return to the working world. Thinking and planning ahead is crucial for such a big decision as retiring early.
55 is a key age in the UK when it comes to early retirement, as this is the age that you can currently access private pensions in the UK (although this is due to rise to 57 in April 2028). However, many points in this article apply to the years after age 55 as well.
In today’s world, people are increasingly taking advantage of more flexible working arrangements and pension rules to phase their retirement.
This practice involves a strategic approach to part-retiring, commonly known as semi-retirement, in which an individual continues to work part-time or on a flexible schedule while starting to receive their pension (this is to help support the drop in income). The objective is to enjoy the benefits of retirement, such as extra leisure time or pursuing a passion, while still earning an income that assists in paying the bills and supporting a comfortable lifestyle. As retirement gets closer, it is essential to start thinking about and potentially planning a semi-retirement phase.
An excellent approach is to decrease working hours gradually, giving enough time to prepare financially, emotionally, and psychologically to transition into total retirement. Therefore incorporating a semi-retirement plan in your wider financial plan can be extremely beneficial to ensure that you ‘phase-in’ towards retirement smoothly, with reduced stress and still earn enough to afford the lifestyle you want.
Thinking about retirement can be daunting, especially when planning for early retirement at 55. It’s important to consider all of the factors influencing how much income you will need to enable the retirement you want.
Planning ahead and not underestimating your expenses is essential. For example, you may want to consider when your mortgage payments are due to end and how it may be paid off. Many individuals choose not to retire until their mortgage has been paid off, to reduce monthly commitments. Others may opt to wait until they reach state pension age to benefit from additional income.
However, if you are considering early retirement at 55, it’s essential to plan for ongoing care costs and consider the cost implication of lifestyle choices, such as traveling more and more general use of your extra leisure time. It’s important to ensure you have a sufficient income to support your plans and don’t retire only to end up confined to your home because you can’t afford to live the life you want. To financially prepare, it’s key to calculate a detailed budget of expenses and set an appropriate retirement savings goal.
Additionally, bigger capital costs need to be considered which include things such as more frequent holidays, wedding gifts, helping out family members, and making adaptions and improvement to your home.
If you’re planning to retire at the age of 55, you’ll be pleased to know that you are still able to work. Accessing your private pension and retiring doesn’t necessarily mean stopping work altogether. There are a variety of reasons why you may wish to continue working, such as earning additional income, contributing to your pension pot, or pursuing freelance or consultancy work or a new field which has always interested you. Many also choose to work part-time or take on short-term projects after retirement. It’s important to have a retirement plan that aligns with your goals and aspirations.
As you start to think about your retirement plans, it’s important to bear in mind that a pension isn’t the only source of income available to you. A flexible retirement can be augmented with a variety of different income streams. Some options include other forms of savings and investments such as ISAs, shares, premium bonds, or cash savings. Additionally, paid work or consultancy, income from your business, renting out a room in your home or income from rental properties can create additional revenue streams for a more comfortable lifestyle in your retirement years. Keep in mind, the more income you generate and the lower your cost of living, the better your chances to retire comfortably at age 55.
While the prospect of increasing your retirement income can be tempting, it’s important to be aware of pension scams that may prey on those looking to boost their income in retirement or release funds from your pensions early. It is important to seek the advice of an authorised independent financial adviser before giving anyone access to your pension information. By avoiding potential pension scams, you can protect your savings and investments and ensure a comfortable and secure retirement.
For most, having a good pension pot is essential for those hoping to retire comfortably, especially if you hope to retire at 55. The ideal pension pot will depend on factors such as if you are an individual or a couple, your expected expenditure in retirement, life expectancy etc. Planning thoroughly for retirement includes a realistic budget for all living expenses, which can vary greatly from person to person based on expenses like their home, family, lifestyle, retirement plans, and health.
While a good pension pot is important for supporting a comfortable retirement, it’s also important to remember that income in retirement can come from multiple sources, not just pension pots. Additional savings, investments, income from rental properties, and the State Pension can all contribute to overall retirement income.
It’s important to speak to an Independent Financial Adviser to help ensure that you have a clear understanding of how much you need to save to make your retirement dreams a reality, as it can be a complicated topic.
When it comes to retirement, there’s more to it than just the financial aspect. It’s great to be able to strike a balance between your personal life and financial and career obligations. Yes, financial planning is important, and it’s possible that if you retire early, you could end up with a reduced income. However, you shouldn’t lose sight of the fact that life doesn’t have to be tied down to work or how much income you have. With early retirement, you get the years to pursue all the things you love – from hobbies to hanging out with family and friends to discovering new endeavours. With careful consideration, planning, and the right mindset, you can achieve a happy, fulfilling early retirement that you deserve.
After a long hard working life amassing wealth, you may be ready for the day when you can stop working and begin to enjoy the money you have saved up. Retiring at 55 is certainly possible for many, but it needs to be carefully planned and considered because of the risk of running out of money too early, with a diminishing ability to get back to work and earn more.
Although the consequences of retiring too early, with not enough money set aside for the retirement life you want, it is also possible to retire too late. You may have enough funds and pensions built up already to retire and live the life you want. Wasting valuable years of your later life working when you do not need to.
The decision to retire and begin to start spending rather than saving can be a daunting one, and it should be carefully planned out to make sure you are making the right choice.
Leaf Financial advisers are Independent Financial Planners and would be happy to chat through any questions you may have about retiring at 55 or anything else. Please give us a ring on 01173 823 823 or email at contact@leafifa.co.uk.
01173 823 823
contact@leafifa.co.uk
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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.
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.
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 individual, however, 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.
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.
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