You will encounter many milestones throughout your life, few as significant as retirement. Regardless of your aspirations for retirement, it’s crucial to explore your options for your post-working years. This article aims to inform you of what you need to do if you’re considering early retirement. It is critical to plan for your long-term future; when considering your pension, seek expert advice from a specialist such as Portafina.
One of the most significant benefits of early retirement is having more time to do the things you want and enjoy. However, you’ll need the money to do this. Therefore, you must have a plan for when you stop working and no longer receive a salary.
Without a financial plan, you’ll unlikely have sufficient income to sustain the lifestyle you want. When planning, it’s crucial to be realistic, as this will help you from making any life-changing decisions you later regret. While making your plan, you’ll better understand when early retirement is a realistic option and how you can accelerate it.
Can you afford early retirement?
This question is the most crucial one to ask, as you cannot retire early if it is unaffordable. A recent study by Which? magazine delved into three lifestyle options for retirement, ranging from essentials to luxury. The report looked at the average spending requirements of each lifestyle and came up with a required income.
The report concluded that a single person would need a retirement income of £19,000 to live comfortably. However, this figure increased to £26,000 for a two-person household. Which? also included information about the amount needed in your pension pot and the contributions you’ll need to make to achieve that.
Assessing your retirement income.
Your retirement income could be made up of one or all of the following:
The State Pension.
Although the state pension is an excellent supplement to your retirement income, you will not receive it until at least 66. Therefore, if you want to retire early, you cannot rely on this money. Instead, you will need to put something else in place for your initial retirement years, such as a personal pension.
Personal and workplace pensions.
Personal and workplace pensions are the most common form of retirement income. Recent regulations regarding pension freedoms mean that many people can now access their pension funds from age 55. However, you should be aware that taking too much money too soon could leave you short of income when you fully retire.
Savings and assets
You may have other savings and assets that will allow you to retire early. These could include ISAs, rental properties, or other investments. You might have to cash in your investment or savings to bridge the gap between early retirement and receiving your State Pension.
How to boost your retirement funds.
When planning for early retirement, you may find the numbers don’t work. The good news is, there are things you can do to boost your retirement funds:
Assess your pensions.
The first thing you should do is to see how your funds stand and how they stack up compared to how much income you want to have when you retire. A full retirement age calculator can be a big help here to give you an accurate age at which you can start drawing social security benefits and how much you’ll need to top up with your own funds. Pension schemes will differ in performance, administration, and management charges. If you are part of a scheme performing poorly and has a high level of charges, your funds could be diminishing. Consulting an independent financial advisor helps you assess your pension options and switch to a more beneficial scheme.
Make top-up payments.
Topping up your pension contributions now and again can significantly impact the money you have for retirement. Pensions are an excellent long-term savings vehicle as they are tax-efficient. Therefore, consider putting any leftover cash into your pension savings rather than squandering it.
Even though your top-up payments may be minimal, they will still benefit from compound interest growth. What this means is the money you earn on interest in one year will benefit from the following years of interest. Over the lifetime of your pension, these small top-up payments can grow considerably. The sooner you make top-up payments, the more time they will have to grow.
Join a workplace pension scheme.
If you are employed, you would likely have been auto-enrolled into a workplace pension scheme. If you’re not part of one, you should consider joining as soon as possible. Workplace pension schemes take a small proportion of your salary, about 4%, and put it in your pension fund. On top of this, your employer also contributes to your retirement fund.
Postpone your retirement.
An obvious way to generate more money for your retirement is to put your retirement off. Although postponing your retirement is contrary to early retirement, it will enable you to prioritise having sufficient income when you stop working. Also, the longer you work, the longer you will receive your employer’s contributions to your retirement.
Postponing your retirement not only has a financial benefit, but it can be good for both your physical and mental well-being. If continuing to work full-time past your planned retirement age is challenging to accept, why not consider reducing your hours or getting a part-time job instead?
Early retirement is all in the planning.
With a bit of financial planning, early retirement is achievable. It all starts with you deciding upon the lifestyle you want to have when you start working, calculating what that will cost, and taking action to achieve the income you require for it