Can and should you retire early?

Can and should you retire early?

In 2018 The Independent reported that nearly 30% of British workers anticipate continuing employment beyond their 70th birthday (double those who thought so 7 years ago).

With reports like this often circulating the news, it is little wonder many people are now almost resigned to the thought that they will have little choice but to keep working into their old age.

Some people might dread the thought of retirement, and so not really be too troubled by the thought of continuing work that they enjoy. However, for those who still idealise the thought of retiring in their 40s or 50s, is it really now a lost dream in Britain as we approach the 2020s?

In this article, we’ll be arguing that with some careful financial planning (particularly if you are starting out in your career) it is still possible to retire with many decades ahead of you.

Read on to find out our thoughts on this. Please just note that this content is for information purposes only, and should not be taken as financial advice. To receive tailored, regulated advice into your own situation, please speak to an independent financial adviser.


Pension Age & Freedoms

Whether or not you will be able to retire early depends on a range of factors – some which are within your control, and others and others not. An example of the latter is your “pension age”.

In 2019, you essentially have two “pension ages”. The first occurs when you reach age 55, which is the point where you can start drawing money from your personal and workplace pension (i.e. “defined contribution” pensions).

The second occurs at your state pension age, which refers to when you are entitled to start receiving a pension income from the government. From October 2020 this will be age 66 for everyone but is planned to eventually increase to age 68.

In 2019, the full new state pension bestows you with £168.60 per week (i.e. about £8,767.20). If you are planning on relying primarily or largely on this money to fund your retirement lifestyle, then you will either need to retire after your state pension age or consider other ways to generate other significant, sustainable sources of retirement income.

A similar line of reasoning applies to your workplace and personal pensions. If you are thinking about relying on these pension schemes to fund your retirement lifestyle, then you will likely need to wait until you are at least 55 when you can start accessing the money.

For some people, this will be possible assuming, for instance, that you are starting planning early, have a significant lump sum to invest, and/or a relatively high and stable income stream to build up a large pension pot over the coming decades – ready for early retirement perhaps in your 50s or 60s.

If you are wanting to retire before age 55 (and it is possible for some), then you will need to look outside of your pension plans in order to stop working and afford your lifestyle over the course of many years and decades, leading up to the point where you can access your pensions.


A matter of mindset

If you are determined to retire early and are currently in your twenties or thirties, then it will not automatically happen for you (unless, for example, you win the lottery or inherit a very large estate, investing it towards your retirement). To achieve it requires a very focused and disciplined mindset when it comes to managing your money and wealth.

One crucial part of the process is determining what your goals are. If you want to retire early, when exactly would you like that to be – 35, 45 or some other age? Also, what do you want your lifestyle to look like?

Your vision might be to live lavishly, involving lots of luxury spending. Yet retiring early does not have to involve attaining this kind of “rich status”. Many people are content to retire early and live far more simply. For this couple, for instance, their plan involved retiring early age 43 on a narrowboat after seven years of aggressive saving and frugal living.

Regardless of your precise goals or desired lifestyle, in most cases retiring early requires a dedicated mindset and going the extra mile when it comes to financial discipline. Many of those in the Financial Independence, Retire Early (FIRE) movement, for instance, will save as much as 50% of their salary towards their retirement plan.

This is where you need to weigh up the pros and cons of retiring early, very carefully…


Is it worth it?

Whilst retiring early might intuitively sound like bliss to many people, there are potential costs involved which you need to take into account and weigh up.

On the one hand, retiring early could open up the opportunity to achieve near-total financial freedom and the opportunity to pursue passions, interests and hobbies you have been unable to commit to before. On the other hand, retiring in your 40s or 50s is still widely considered quite counter-cultural, and you might well face confusion or even consternation from those around you. There’s also the potential loss of routine, colleagues and identity which you might face after leaving a successful, high-flying job for a quieter, more relaxed retirement lifestyle.

It’s also important to ask yourself how you might be affected, shorter-term when pursuing a goal of early retirement. In some cases (particularly if you are a high earner but also tend to spend very little), putting huge regular sums aside towards retirement might not affect you too much. For others, they might be looking at a drastic saving strategy which deprives them of things they enjoy or the opportunity to make precious memories (e.g. on a family holiday).

The best thing to do is to discuss your aspirations and plans with an experienced, qualified financial adviser. They will be able to assess your situation with an open, impartial mind and advise you on the viability of your goals, as well as what it would take to achieve them.

To speak with a member of our team here at Cedar House, please get in touch to arrange a free, no-commitment consultation today.

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