How to retire young

You might love your work, but as the years go by, you may find that you love it rather less than you did when you started.

Other things in life, family, travel, hobbies – and enjoying spending money rather than having to spend every waking hour making it start to increase in appeal.

Retiring early can seem more appealing with every passing birthday. After all, there is no point spending years building up a fortune in your pension pot if you don’t retire until you are too old to enjoy it.

At Continuum we are looking at how to retire young.

The problems with retiring early

Under current legislation, you can retire at any time after you have passed the age of 55 and start drawing your work or private pension. The early retirement age is set to go up to 57 in 2028, and you will have to wait several more years to start claiming your state pension, but if you have enough in your private pension pot, there is no reason to hang on until state retirement age.

But there are actually two problems with retiring early. The first is obvious enough. You will have many more years of living to fund. You will need a much larger pension pot if you are to enjoy the kind of active lifestyle you want and avoid the risk of running out of money.

If you are still young and active, you probably won’t be content to sit by the fire or pruning your roses. Travel, taking up new sports and interests and generally making the most of what could be 40 years of leisure is going to be costly. 

The second is a little more complicated. By retiring early, you have less years of work to build up your pension and possibly even more important, less years for the investment and compound growth  to build on your contributions and potentially grow into the kind of pension pot you want. 

You will also need to consider inflation. A long retirement means watching the real value of a static income fall.

But there are ways to build the pension pot you need.

Save hard

A happy early retirement based on a good pension means a bigger pension pot. It is vital to start saving early.

By contributing extra into your pension you might be able to grow a larger pension fund. You could consider making things a little easier by making the most of employer contribution matching. Does your scheme allow you to increase your contributions? If you can arrange a ‘salary sacrifice’ and pay more into your pension fund, you could reduce your tax bill. However, if you are considering purchasing your own home it may impact on the amount you could borrow, you should seek advice before taking any action.

Selecting a suitable pension  

It is of course unlikely that your employer’s pension alone will provide the funds you need for early retirement. You may also need to consider a personal pension. 

A personal pension and workplace/employers pension have the tax advantages you may be familiar with, but with the important advantage contributions can be invested to provide the opportunity to accumulate a pension pot (depending on investment returns which are not guaranteed), you want – reflecting your age and attitude to risk for example.

Get some expert help

Personal pensions are easy to arrange, but there are many different providers, and many different ways for them to invest your contributions.

Aiming to get the pension and the performance you need to turn your contributions into a pot large enough for early retirement may take some careful planning and expert knowledge.

Simply contact us and we will provide you with a dedicated pension adviser to help at every stage, starting with a close look at your plans and resources.

Then we will look at different strategies which can aim to build your retirement wealth in time for your early retirement.

There’s one thing to remember. When it comes to pension saving, time really is money. The sooner you start planning for a more secure future and looking to build the pension pot you need, the less it will actually cost to do so – and the sooner you may be able to retire.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable reitrement strategy, you should seek independent financial advice before embarking on any course of action.

A pension is a long term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pension income could also be affected by interest rates and currency fluctuations at the time benefits are taken. Capital is at risk

Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits. 

Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.

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