Millennials are the generation born between the early 1980s and 1990s, who started reaching adulthood at the turn of the 21st century.
Now in their thirties and forties, they are probably enjoying the most stimulating years of their careers, while juggling the demands of a young family and the challenges of moving up the housing ladder.
So, here’s a sobering thought. If you are among them, it might be time to start thinking about early retirement.
Even if you enjoy your work now, a life of leisure might become appealing in a few years’ time. And a long career might not even be an option. As a digital native you may have skills that are valuable now, but the world of employment is turning fast, especially with AI coming.
The “normal minimum pension age” – which dictates when workers can access money in their private pension pots without hefty tax charges – will rise from 55 to 57 by 2028. It could then soon after rise to 58 to follow any further state pension age increase.
So, here’s some good news. Even if – like most millennials – you are facing financial challenges with high property prices, rocketing interest rates and economic uncertainty ahead, you probably can consider retiring early.
And you may have a very valuable asset that will help.
Can you retire early?
The first step towards early retirement is to define your goals. What does “early retirement” mean to you? You don’t have to wait until state retirement age (which may be going up fast) to quit the 9-5. If your circumstances are suitable, you can actually retire at 57 and draw your private pension under current legislation.
You could also consider retiring gradually – working less hours and enjoying more leisure time. It can come as less of a shock than going directly from desk to armchair and may even be better for your health as well as your finances.
You might even want to think about giving up working for someone else, and start your own business, with the security of having that pension pot to fall back on if things don’t quite work out the way you want.
But whatever you decide, you can only do it if you have a pension pot large enough to provide the income you need.
The earlier you retire the bigger your pension pot needs to be. You have more years of retirement to fund, less time for compound interest to work for you. Where your state pension only starts to pay out at 66, it means that if you are finishing work at 57 you will have almost a decade until you receive it. The state pension age is due to rise to 67 between 2026 and 2028 and this rise has meant that anyone born after March 5, 1961, who is aged 62 years old or younger today will only be able to access their state pension when they are at least 67.
You can check your State pension age on the Gov.uk website.
Using your big advantage.
The biggest advantage you have as a millennial is time. You still have time to grow your pension pot, even if you want to retire before state pension age.
It makes sense to start saving young. Start at 20, and you could have 37 years of contributions in your pension before the early retirement gate swings open. Those contributions could potentially grow handsomely with successful investment and the wonders of compound interest. Wait until you are 30, and you have to pay in much more each month to build the pot you want.
But even though time is on your side, you still need a pension strategy that will help give you a pension pot large enough for the lifestyle you want.
Getting started
It may not always be appropriate for you to rely on workplace pensions only– although the fact that an employer must contribute with you makes them very good value. You may need to consider partnering them with a private pension. How much will it cost? The answer is complicated. Your age, how much you have saved, how is it performing, and whether you have other investments such as ISAs, all need to be factored into your pension strategy.
At Continuum we can sit down with you to work out the sum you need for the lifestyle you want and prepare detailed illustrations showing you how you can potentially build it.
We can provide a forecast of how your pension pot should potentially grow, with illustrations of how much may be in your pot when retirement time comes round – and whether you might be able to afford to retire early.
If your current schemes are falling below the industry benchmarks, we can help you find alternatives which could potentially make your money work harder and grow faster for you.
Whether or not early retirement appeals, it’s never too early to start making the most of your pension.
That means it’s never too early to call us at Continuum for the help you need.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long term investment, the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken
Pension savings are at risk of being eroded by inflation.
Accessing pension benefits early is not suitable for everyone. You should seek advice to understand your options at retirement.
Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means tested benefits.
https://www.telegraph.co.uk/money/pensions/state-pensions/when-age-retire-state-pension-calculator/
