Retirement is one of the most significant milestones in anyone’s life, and many people look forward to ceasing work. Retirement provides you with an opportunity to spend your time doing the things you want.
Retiring early allows you to maximise this opportunity. However, many people are unaware of their options for achieving early retirement. Therefore, continue reading to discover all you need to know about early retirement. Check out Portafina for expert and regulated financial advice to help you plan for your retirement.
Develop A Plan
You must have developed a plan before deciding to call a halt to your working life. Without a plan, you could find that your income does not support your anticipated retirement lifestyle.
It would be best if you were as realistic as possible when planning an early retirement. Doing so will give you an accurate idea of how early you can retire if early at all, and how you might accelerate that date.
Of course, your starting point is calculating whether you can afford early retirement. After that, you can look at a few ways of boosting your pension funds.
Can You Afford Early Retirement?
Before deciding if you can retire early, you must be clear on the lifestyle you want when you finish working.
A recent Which? Magazine report details how much income you’ll need for three lifestyle levels. Below is a summary of the annual income they reckon you need for different retirement lifestyles:
• Single Person Household – £12,000
• Two-Person Household – £18,000
• Single Person Household – £19,000
• Two-Person Household – £28,000
• Single Person Household – £31,000
• Two-Person Household – £45,000
Using these figures as a rough guide, you can understand if you have sufficient funds in your pension pot to achieve the retirement lifestyle you want. It will also inform you how much you must save each month to boost your retirement income sufficiently.
Let’s look at where your income in retirement might come from.
Your Potential Retirement Income
The State Pension
The State Pension is the first thing many consider when calculating their retirement income. Indeed, the State Pension provides the most significant proportion of many people’s money when they retire.
However, when considering early retirement, the State pension doesn’t come into the equation, as you don’t qualify until you reach your mid-sixties. Therefore, you will need to put in place other income sources to cover your early retirement years until your State Pension kicks in.
Personal And Workplace Pensions
Thanks to Pension Freedoms introduced in 2015, it is now much easier to retire early. That’s because you might be able to access your funds from age 55, depending on the type of pension scheme you are in.
Of course, you should be mindful of the amount of money you take from your pension pot early. Taking too much too soon could leave you short of funds later in retirement.
Other Assets And Savings
You should also consider other forms of income apart from pensions when deciding on early retirement. For instance, you might have assets you can sell, such as gold, shares, property, and others. Receiving rent from property is another common form of retirement income. Finally, you might have savings or investments that you can rely on to fund your early retirement.
How To Boost Your Retirement Pot
You will want to maximize your pension funds regardless of your income sources. Here are a few ways to boost your pension pot:
Explore Your Options
Although all pensions are designed to provide an income in retirement, they are not all the same. For instance, some schemes will have low fees and perform well, while others will underperform and have high charges attached.
You should check your pension regularly and ensure it is performing as expected. A financial advisor can talk you through your various options to maximise your pension’s performance.
Make Top-Up Payments
Making additional contributions to your pension means you’ll have more money available to fund your early retirement. All contributions you make to your pension pot qualify for tax relief. Also, they will benefit from compound interest growth, which significantly boosts your funds.
Therefore, the earlier you start making additional top-up payments and the more regular you maintain these, the more you can boost your retirement pot.
Enroll Into A Workplace Pension Scheme
You will probably be enrolled in a workplace pension if you are employed. However, if not and you qualify, you should join such a scheme as soon as possible. Workplace pensions are funded by small contributions (around 4%) of your monthly salary. However, you also receive around the same level of contributions in the form of tax relief and payments from your employer.
Postpone Your Retirement
Of course, this article is about achieving early retirement, so suggesting you postpone this may seem off-topic. However, delaying your early retirement by a few years means you still might be able to retire earlier than planned.
It also gives you additional time to generate income and get financially organized for retirement. Moreover, you can continue to make pension contributions and receive further compound interest growth. Consequently, you can give your pension funds a significant boost.
If continuing to work full-time isn’t to your liking, ask your boss to reduce your hours or take on a new part-time role. Doing so will also enable you to phase your retirement rather than stopping entirely and all at once.
With Some Planning, You Can Achieve Early Retirement
Many people have achieved early retirement and are spending their time doing more of the things they love. The good news is that you can also have a comfortable early retirement with a bit of planning. Hopefully, this article will inform you what you need to retire early and how you can achieve this.