The desire to retire early is a common goal amongst our clients. Perhaps they would like to spend more time with family, or travelling the world while they are still healthy enough to enjoy it.
A world of options opens up at retirement, and it’s important to ensure that you can not only cope financially, but also to appreciate your later years, free of the responsibilities of working life.
This is a reasonable aspiration, but it is not the reality for many people. The State Pension age is rising to 68, with many public sector pension schemes following suit. Generous final salary pension schemes are closing. The current workplace pension requirements place some responsibilities on employers, but the contributions are hardly enough to secure the retirement of your dreams.
Despite this, early retirement is achievable if you know what you need to do and diligently follow your plan. Cashflow planning is key, and the earlier you start, the easier it will be.
Here are our tip 5 tips for reducing your retirement age:
The best way to reduce your retirement age is to build up a bigger retirement pot. Not only will the fund have less time to grow if you retire at age 55 instead of 60, but it will also need to last longer to compensate for those five extra years.
While this may sound daunting, over a long period small extra savings can make a huge difference. Cashflow planning can help you determine exactly how much you need to save into a pension and for how long. ISAs and other investments may also form part of your retirement plan.
There are various ways to find extra money in your monthly budget without negatively impacting your lifestyle. For example:
- Checking that you are on the best deal for your mortgage, insurances, utilities and TV packages
- Reviewing your food budget to eliminate waste
- Socialising at home instead of going out
Alternatively, working out the amount you need to save may give you the motivation to negotiate a pay-rise or start a side business.
Spend Less in Retirement
Your expenditure may not be as high as you think when you retire. Costs can reduce significantly when you are no longer working.
Without the daily commute, you could save significantly on public transport costs, or even sell your second car. Bus passes and Senior Railcards are available at age 60 which can help to reduce costs further.
Numerous other senior discounts are available on travel, entertainment and shopping.
Work clothes, weekday lunches, Friday drinks and office birthdays will become a thing of the past, saving hundreds over the course of a year.
With more time on your hands, you may also find that you no longer need to pay other people for things you can do yourself, such as cooking, cleaning, washing the car or walking the dog. There’s no need for an expensive gym membership with all of these extra activities.
Prescriptions and eye tests are also free for over 60s, which may reduce some of your healthcare costs.
Of course, some costs may go up. You may wish to spend more on holidays for example. However when you are no longer tied to annual leave restrictions or school holidays, you will be in a better position to snap up the best travel deals.
Don’t forget that your State Pension will come into payment by age 68, providing you have at least 35 years in National Insurance credits. It’s probably not enough to live on, but can certainly cover most of the essential bills.
Investment returns can be unpredictable, and it would be wrong to build a financial plan on the basis of always beating the market. But steady investment growth is one of the cornerstones of cashflow planning, as it informs the assumptions made, and ultimately the outcomes.
A risk averse investor may prefer to keep all of their money in cash. They are not vulnerable if the market goes down, and a predictable interest rate of 1.5% may sound more reassuring than the possibility of losing money.
This investor is not considering the possibility of inflation risk. If the cost of living goes up by 3%, and their money has only grown by 1.5%, the have actually lost money in real terms. Over a year, the effect is negligible. Over five years, perhaps it means spending a little less at the supermarket. Compounded over a lifetime of saving, this investor will almost certainly be worse off than someone with a sensible investment strategy.
An investment portfolio may lose money in some years, but over the longer term, it is better placed to keep up with inflation than cash.
Improving returns does not mean putting all of your money into high risk companies, or making daily trades to gain a small advantage. It does mean:
- Reducing costs as far as possible
- Diversifying across various asset classes, sectors and geographical regions
- Using suitable investment vehicles so that tax is minimised
- Selecting funds and managers with a strong track record
- Regularly reviewing the investment to ensure it stays on track
Retirement does not need to be a fixed date, at which work stops and you start drawing on your pension. The options for flexible working and part time self-employment are endless.
Think carefully about why you would like to retire early.
Are you dissatisfied with work? Perhaps you have a hobby that you could make money from, either by selling your handiwork or teaching others.
Long hours and work stress taking their toll? Maybe a move to a role with less responsibility would give you more life satisfaction.
Need more time to spend on travel and family? A reduced working week could give you the extra free time you require.
A gradual retirement plan can also help to ease the transition from full-time work, helping you adjust to your new lifestyle.
So, you are maximising your pension contributions, paying into your ISA, you have a realistic retirement goal, a solid investment strategy and plan to work two days a week from age 55.
What if this still isn’t enough?
Not everyone creates a financial plan in their thirties, in fact very few people do. And with longer life expectancy and rising care costs, relying on an inheritance is rarely the answer.
Your home is a valuable asset, and downsizing may release the capital you need to create a comfortable retirement.
Of course, if you prefer to remain in your home, Equity Release and Lifetime Mortgages offer a useful method of withdrawing capital from the value of your home, without the need to move. This is a complex area and professional advice from an accredited firm is vital.
This guide is created for information only, and does not constitute financial advice. Please do not hesitate to contact a member of the team if you would like some help in planning your own retirement. Contact us today on 020 8366 4400 or firstname.lastname@example.org.