Retirement is one of the most significant milestones in your life. It is time when you can stop working and do more of the things you enjoy.
Unfortunately, many people cannot enjoy this period of their life to the fullest as they have failed to plan for it. On the other hand, plenty of people retire early and enjoy many years of a comfortable retirement.
You can achieve an early retirement if you want it. However, it depends on what you want to do in your retirement and whether you’ll have the money to fund it.
Waving goodbye to the 9-to-5 without a sound financial plan could land you in trouble. Therefore, this article will discuss what you must consider achieving early retirement. It is critical to plan for the long term; while evaluating your pension, seek experienced guidance from a specialist such as Portafina.
Can You Afford to Retire Early?
The main question you must ask is can you afford to retire early? The answer depends on the lifestyle you want to have in retirement.
A recent report in Which? Magazine details the income you’ll need to achieve three lifestyle levels. Here’s a snapshot of what they concluded for annual income requirements:
- Single Person – £12,000
- Couple £18,000
- Comfortable Lifestyle
- Single Person – £19,000
- Couple – £28,000
- Luxury Lifestyle
- Single Person – £31,000
- Couple – £45,000
These figures should give you a good idea of how much you’ll need in your pension pot to retire. Then, depending on when you want to retire, you can calculate how much you must save each month to grow your funds sufficiently.
Assess Your Retirement Income
Having decided on the type of retirement lifestyle you want, it’s time to assess your retirement income. This money could come from different sources, including:
- State Pension
- Personal/Workplace Pensions
- Savings and Assets
Let’s take a brief look at each one.
The State Pension is an excellent benefit you should receive when you are 66. However, this age is planned to rise over the next couple of decades. If you include the State Pension as part of your retirement income, you’ll need to find something to replace it for your early retirement years.
Pension freedoms enabling you to access your funds from age 55 have made early retirement easier to achieve for millions of people. However, you should consider the implications of taking too much money from your pensions too early. For instance, doing so could result in you being short of income later in your retirement.
Savings and Assets
You may also have savings, rental property, and other investments to include in your retirement income. You might have to liquidate some of these to bridge the gap between early retirement and receiving your State Pension.
How to Boost Your Retirement Funds
If you want to retire early, it’s crucial to boost your retirement funds as quickly as possible. Here are a few ways you can increase your retirement income:
- Consider Switching Pensions
- Make Additional Contributions
- Stay In Your Workplace Pension Scheme
- Postpone Your Early Retirement
Consider Switching Pensions
Not all pensions perform at the same level and come with varying charges. If your pension is underperforming or suffering from high fees, it could jeopardise your chances of achieving early retirement. Therefore, you should check your plan regularly and consider switching to a more profitable scheme.
Make Additional Contributions
Making regular top-up payments to your pension will enable it to grow considerably. Your pension contributions receive tax relief, which also applies to top-up payments. Also, your contributions will benefit from compound interest growth, meaning your funds can grow significantly over years of investment.
Therefore, consider putting any spare money into your pension. Doing so will enhance your chances of retiring early.
Stay In Your Workplace Pension Scheme
If you are employed and meet the qualifying criteria, you should be automatically enrolled in a workplace pension scheme. Although you have an option of leaving such schemes, you should not take this option.
With workplace pensions, your employer contributes to your retirement fund in addition to your payments. Opting out means you would miss out on this money, potentially tens of thousands of pounds over your career. Therefore, staying in a workplace pension is essential to achieve early retirement.
Postpone Your Early Retirement
You might want to commence your early retirement as soon as possible. However, doing so is pointless if you don’t have sufficient retirement funds to sustain your desired lifestyle. Therefore, you should consider postponing your early retirement until the point you can comfortably afford it.
Working for just a few additional years can make a considerable difference. Not only will you continue to receive an income, but you will also continue to grow your pension pot. Therefore, postponing your planned early retirement date can still result in an earlier retirement than typical.
With Some Planning, You Can Retire Early
Many people enjoy an early retirement with the lifestyle they desire. The good news is that you can achieve this too. With some planning of what you want to do, the income you’ll need, and how you can generate that income, you could be retiring sooner than you think. Best Retirement Planning Advice Ever: Know Thyself