How do I retire early?
I think we all secretly dream of early retirement. I often ask people in their twenties when they’d like to retire, and “before I am 50” is quite a popular answer. In reality, retiring early takes planning, sacrifice, careful financial management and the will to start planning early, i.e. in your younger years.
Retiring early is not easy. It is a privilege reserved for those who have planned for it and made the necessary sacrifices.
Quick summary
Here’s a brief overview of what you’ll learn in today’s article:
- The importance of long term planning
- A list of considerations to help you retire early
- The different investments that form a retirement savings plan
- Reasons to work with a retirement planner
Related reading: How much money do I need to retire?
What age is considered early retirement?
Any age before the state pension age may be considered retiring early. As a result, people often seek guidance on how much money you need to retire at 55 or 60.
The state pension age in the UK currently ranges between 66 and 68.
However, many consider early retirement to start at age 55, when private and workplace pensions become more accessible. Legal and financial implications vary, so understanding these thresholds is crucial.
What do I need to do to retire early?
The first thing you need is enough money!
Start by working out how much you have. This would include personal and workplace pensions, savings and investments and any other assets that could give you an income in retirement.
The second step is determining how much you would need to live on if you retired, i.e., stopped working completely. This shouldn’t be too difficult, and you can do it by making a list of all your likely monthly costs in retirement.
Don’t just include essentials like council tax, utilities, and food. Include non-essentials like:
- Going out
- Holidays
- Entertainment
- Hobbies
- Clothing
Whatever may apply to your retired life, and remember that with so much more time on your hands, you’re likely to spend more on non-essentials.
What sorts of assets should I have?
What you want are assets that can be liquidated or used to provide you with an income.
These could include pensions, savings and investments such as:
- ISAs
- Savings accounts
- Stocks and shares
- National savings
- Buy to let properties
The more of these you have, the better diversified your portfolio will be; however, there’s nothing to say that having all your money in a pension is wrong.
Unless you are lucky enough to inherit a lot of money, you should have created a well-diversified portfolio of savings and investments in your younger years.
In addition to helping you retire early, the above investments will also help you increase your net worth.
Working with a retirement planner
Knowing how to convert savings and investments into a sustainable income is a complex affair that involves intricate calculations. This is where most people fail, and this is where engaging a financial adviser would pay for itself.
Retirement planners and financial advisers can help you create a plan tailored to your circumstances and goals. A gap analysis tool would identify gaps between where you were and where you wanted to be.
Can they help you achieve an early retirement?
Working with a retirement planner offers many advantages, including:
- Expert, tailored retirement advice and guidance
- Managing risk and recommending appropriate investments
- Long term tax planning and financial protection
- Reviewing and adjusting your investments where needed
- Peace of mind knowing you are in the hands of an expert
Furthermore, working with a retirement planner can save you time, so you can attend to your busy life.
How to retire early – summary
If you are planning an early retirement, remember that careful financial management and early preparation are key to achieving this goal.
Additionally, assessing your monthly expenses, including non-essentials, helps you set a realistic budget. Furthermore, it’s wise to diversify your investments so that your golden retirement eggs aren’t in one basket!
Lastly, working with a retirement planner can simplify the process and provide expert guidance as you save for early retirement.
The benefits of early planning and your sacrifices pave the way for an achievable early retirement, filling you with hope and motivation.
Article FAQs
Did you enjoy this article? If so, here are a few answers to questions you may have after reading this article.
How can I effectively start planning to retire early?
If you are looking to retire early, one of the first things you need to do is understand how much money you’ll need for a longer period in retirement. Then, assess the current value of your investments and pensions, identifying any shortfalls. Using a pension calculator will help you determine if you are on track.
Lastly, you need to create a comprehensive retirement savings and pension plan. This plan will guide you in saving and investing for an early retirement.
Related reading: Is my workplace pension going to be enough to retire on?
What are the key steps to achieve early retirement?
Here are a few suggestions to help you on your path to an early retirement.
Firstly, aligning your savings and investment plan with your desired retirement age is essential. Next, start thinking about how much you’ll need for a comfortable or abundant retirement.
Investment risk is also an important factor. For example, if you are a cautious individual, it’s better to avoid riskier investments. Understanding your tolerance to investment risk will help you choose suitable investments.
If this sounds like a daunting task, consider hiring a pension adviser or retirement planner to help you achieve your goals.
How much should I save monthly to retire early?
Again, like our suggestions above, determining your desired retirement age is key. This will help you to understand how much you’ll need in pensions and investments to retire early.
Remember that investments can fluctuate; projections are predictions and are subject to market and economic factors.
It’s crucial to save consistently towards your early retirement goals, adjusting your plans as needed.
What are the different stages of the retirement planning process?
The retirement planning process includes assessing your current financial situation and setting retirement and financial goals.
Furthermore, the retirement planning process also covers developing a savings and investment plan, and monitoring your progress.
As we all know, life can throw us curveballs, and our financial situation can change. As a result, it’s crucial to regularly review and adjust your plan to stay on track and meet your retirement objectives.
If you are working with a retirement planner and your situation changes, they are your source of guidance and support to help you evaluate and implement any changes to your plan.
Are pensions a good investment?
Pensions offer tax-free growth and government contributions, helping to build your retirement fund. They lock away your money until retirement, ensuring it grows over time.
Considering the above, pensions are a vital component of a successful retirement strategy for many people.
How can I maximise my retirement savings over time?
A combination of ISAs, pensions, and other investments will help grow your retirement pot over time. Secondly, regularly review your spending and increase monthly savings where possible. An extra £50 – £100 per month could make all the difference over a 10, 15 or 20 year period.
When investing in a pension, you can either make lump sum or regular pension contributions. As a result, if you do receive an inheritance or a financial gift, you could use it to top up your pension.
Another consideration is working with a specialist retirement planner. They have the experience and knowledge to build and plan and guide you towards an early retirement.
What’s the easiest way to retire early?
Unfortunately, for many, there’s no easy way to retire early unless you receive a significant inheritance or win the lottery.
However, specific actions can help make the process much easier.
Start saving early, invest wisely, live within your means, and regularly review your financial plan. Engaging with an experienced adviser can make the process smoother and more manageable.
