There is no more significant milestone in life than retirement. Unfortunately, by the time many retire, they don’t have the time or energy to do everything they’ve planned.
Retiring early means you can enjoy more of the things you want. For instance, travel, creating family memories, spending time on your hobby, or just relaxing.
Of course, these things cost money, so you need to plan if you want to retire early. Read on to discover what you need to understand about early retirement. Planning for your long term future is crucial; when considering your pension, take on expert advice from a specialist such as Portafina.
Can You Afford Early Retirement?
To answer this question, first, you must decide on the lifestyle you want and your goals for retirement. A recent Which? Magazine report assessed the income required for three lifestyles in retirement:
- Essential Living
- Single – £12k
- Couple £18k
- Comfortable Living
- Single – £19k
- Couple – £28k
- Luxury Living
- Single – £31k
- Couple – £45k
Knowing these figures means you can understand how much you’ll need in your pension pot to achieve the lifestyle you want. Subsequently, you’ll know the amount you need to save each month to build a sufficient retirement fund.
Your Retirement Income
Your retirement income will likely come from several sources, including the following:
- Personal or Workplace Pensions
- The State Pension
- Savings and Assets
Let’s look at these in more detail.
Personal and Workplace Pensions
You can access your funds from age fifty-five with many workplace or personal pensions. This feature makes them ideal for early retirement. Of course, the earlier you start drawing money from these, the sooner it will run out. Therefore, ensure you do not leave yourself short of income later by taking too much too soon.
The State Pension
Although the State Pension is an excellent supplement to your retirement income, it’s unlikely to sustain your lifestyle on its own. More to the point, the State Pension doesn’t kick in until you reach your mid-60s. Therefore, you cannot factor it into your plans for early retirement. However, you must consider how you will bridge the gap if you want to retire early.
Savings and Assets
You should consider your savings and other assets as sources of income for early retirement. For instance, you might have ISAs, shares, or property you can use to supplement your income until you reach the State Pension qualifying age.
How to Boost Your Retirement Funds
Having as much money as possible for retirement is crucial, especially if you want to retire early. Here are a few ways to boost your retirement funds:
1. Maximise Your Pension’s Growth.
Different pension plans come with different charges and varying degrees of performance. If you are paying high fees or your pension is performing poorly, you could lose out on thousands of pounds a year. You should check your pension regularly and consult a financial advisor to ensure you maximise your pension’s growth opportunities.
2. Make Regular Top-Up Payments to Your Pension
Making regular top-up payments to your pension can give your funds a significant boost. Even small amounts can make a big difference over time.
Remember, your pension contributions are tax-free up to your annual allowance or 100% of your earnings, which applies to any top-up payments you make. Also, they will receive compound interest growth each year, again growing small sums into more significant amounts. Therefore, consider using any spare money you have wisely and putting it into your pension.
3. Enroll In a Workplace Pension Scheme
You will likely be automatically enrolled into a workplace pension scheme if you meet the criteria. However, if you’ve somehow slipped through the net or previously opted out, you should ensure you opt in as soon as possible. Workplace pensions are an excellent way to save for retirement, and your employer contributes to your retirement fund as well as you.
4. Postpone Your Retirement
Okay, this one might not be a match for your early retirement plans, but bear with it. Working even a few years beyond your planned early retirement date could benefit you mentally and financially.
Not only will you continue to grow your pension funds, but you will retain the friendships, camaraderie, and challenges of your work. You might consider phasing your retirement by cutting back on your hours or taking on a less challenging role.
With Some Planning, You Can Enjoy an Early Retirement
With a bit of planning, you can enjoy an early retirement. Start by deciding on the retirement lifestyle you want. Then, you can calculate the funds you’ll need to achieve this lifestyle and how much you’ll need to save each month to attain it. Once you’ve done this, stick to your plan, and you could enjoy many more years of a comfortable retirement.