Your 5 Steps to Fulfilling Your Dream of Early Retirement
Are you thinking about how you could take early retirement and have the freedom of not having to spend all day working?
For most of us, early retirement is just a dream; but what if you could make it a reality? What would you have to do to spend your late 50s or early 60s on a beach rather than an office chair?
Take a look at the following five steps. They might help you decide whether you can make your early retirement dream come true.
1. Find out How Much You Should Save for Early Retirement
You won’t be able to live on freedom and fresh air alone. So, saving enough money as soon as you can is vital to make your dream a comfortable one.
Age UK promotes a handy online Pension Calculator tool on its website. This could help you by finding out how much you should save for the early retirement age you’ve got in mind.
Before using the tool, you need to know your current savings total and decide on your ideal yearly retirement income and desired retirement age. Input this with your current age, and the calculator will work out if your dream is achievable.
Give it a try. And good luck!
If the results are not to your liking, you may have to compromise on your desired retirement age and income, but do give it another go. The compromise might still be better than working to full retirement age.
2. Start Saving for Early Retirement
You’ve consulted the Pension Calculator tool and have decided to make your early retirement dream a reality. So, the next step is to save as much money as you can afford.
There are several options:
- Increase Your Own Pension Contributions
Whether you have a workplace or personal pension, it should be easy to change your contributions to an amount that you can afford to sacrifice from your salary.
- Increase Your Employer’s Pension Contributions
Ask your employer to increase their contribution to your workplace pension or match your contribution. Auto-enrolment, where your employer currently has to contribute at least 3% of your annual salary to your pension, is one option. Or, you could ask for contribution matching, where your employer matches your contributions voluntarily.
- Use Money-Saving Apps
You can use the handy money-saving apps available for your smartphone or tablet. ‘Which?’ have featured the five best budgeting apps currently available. To find out more, read the article here.
Saving as much money as possible is one of the keys to fulfilling your dream of early retirement.
3. Put All Your Pensions into One Pot for Early Retirement
Most people have moved from job to job during their careers and collected a few different pension pots along the way.
You could save some money by combining all these pension pots into one. To help you with taking a look at this option, we have compiled a list of three considerations. Read our article here to see if you should combine all your pension pots into one and how you should go about it.
4. Check That You Qualify for Full State Pension at Early Retirement
You won’t be able to access your State Pension until you reach the State Pension Age.
Before leaping into early retirement, make sure that you’ve worked long enough to qualify for the full state pension. After all, you need and want to get the maximum amount when it is due to you.
You must have worked and paid your National Insurance for at least 35 years unless you qualify for credits.
5. Access Your Pension Early
You’ve calculated the amount of money you need to retire at your desired age. You’ve made the necessary checks, and you’re on track to making the savings and changes to make your early retirement a comfortable one.
So, when will you finally be able to access your pension?
You must be at least 55 before you can access your pension early (this is expected to rise to age 57 by 2028). The current options you have are as follows:
- Draw Cash from Your PensionPot
You could withdraw some or all of your pension funds via a Pension Drawdown. Since April 2015 there is no limit anymore to how much you can draw. You can take cash as and when you need it, and the first 25% is tax-free when taken as a lump sum. But, there are some disadvantages as well as advantages, so make sure you consider these carefully.
- Buy A Guaranteed Income
You could buy an Annuity that will give you a guaranteed income for a fixed number of years or the rest of your life. Again, it is essential that you check the pros and cons before making your decision.
Do you feel a little closer to fulfilling your dream of early retirement? We hope so.
Retirement planning can be confusing whether you are thinking of taking your pension early or not. If you have any doubts about what to do, we would recommend that you talk to an independent financial adviser before making any decisions.
If you live in or around Yorkshire, we would be happy to speak to you. Please get in touch at any time.
If you live further afield, you can find an FCA registered adviser in your area via the Unbiased website.
Beware of Pension Scams! Some companies claim they can help you access your pension even earlier than 55. They are most likely untrustworthy. You should never give out any personal details about your pension or other finances. Always check the Financial Conduct Authority register and the Financial Conduct Authority warning list to see who is regulated and who is to be avoided.
The information in this post should not be regarded as financial advice.