You are here: Home - Retirement - Retirement planning - How to -

How to retire early

0
Written by:
25/02/2015
The prospect of retiring early will seem alien to many; an indulgence only obtainable by the most extravagantly remunerated investment bankers, lottery winners and the nobility.

However, starting retirement a few years early can be within reach. Here are a few suggestions that could help you leave the working world early.

  • Determine your retirement budget

If you wish to retire early, the first logical step is to calculate just how much money you will need when you retire. This should include both expected income and monthly outgoings. You probably won’t need the same level of income – your mortgage probably will have been paid off, for example, but you should consider holding some rainy day cash. You’ll also need to reflect on how long you’ll live. Adrian Lowcock, head of investing at AXA Wealth, says that people on average underestimate their own life expectancy by about a decade – so bear this in mind!

  • Load your pension

One of the keys to early retirement is having a pension sizeable enough to cover your living expenses when you give up work, in lieu of a regular income. Thus, if your employer provides you with a private pension, you should capitalise to the full. Your employer contributes a basic monthly sum to the pension – and so should you. Earmark a chunk of your regular income for your private pension – and remember that the more you contribute, the more your employer contributes (although this capped at around 15 per cent).

Making a significant one-off contribution to a pension makes a lot of sense, too. Current pension rules entitle you to tax relief (20 per cent for basic rate payers; 40 per cent for higher rate payers) on up to £40,000 of pension contributions annually. Thus, any money you don’t end up spending, saving or investing elsewhere in a year can go straight into your pension.

  • Consolidate your pensions

According to Paul Evans of Suffolk Life, the average retiree has money held in 4 separate pensions by the time they leave work. If you’re not sure how many pensions you have contributed to during your career, find out – and then, consolidate them into a single pension. It’s not only convenient having all your pension funds in a single, unified place; moving all your pensions into a single place ensures you have the maximum possible retirement income available to you, and means your investments are managed coherently.

  • Keep on contributin’

It’s also important to remember that once you’re retired, you needn’t stop contributing to your pension. Furthermore, the new pension reforms mean that as of next April, you can keep contributing up to £10,000 into your pension annually. These deposits will also be supplemented by tax relief (20 per cent for basic rate payers; 40 per cent for higher). This option is especially sensible if you choose to semi-retire.

  • Use your Isa allowances
  • Isas are now a potent weapon in your retirement income arsenal. Although there is no tax relief on contributions, all income generated from an Isa is tax-free. Investors can now squirrel away £15,000 per year. Assuming 5% growth per year, investors saving the maximum into their Isa each year could build a pot of over £500,000 within 20 years.

  • Start early
  • Compound interest is your friend. The earlier you start saving, the sooner you can achieve financial freedom.
     

    There are 0 Comment(s)

    If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

    Are you a first-time buyer looking for a mortgage?

    Look no further, get the help you need by searching for your perfect mortgage

    Insurance Experts: Are you fully insured? Click here to get a quote.

    For a free quote or to speak with an insurance expert call 0800 1218744

    Flight delayed or cancelled? How you can claim £520 compensation

    If your flight’s already been delayed or cancelled, or you’re jetting away this summer and want to be armed wi...

    Could this be the secret to early retirement?

    Taking an active approach to where your pension is invested means money is deposited into funds that can drama...

    Bank of England: base rate could stay under 2% for 30 years

    The Bank of England (BoE) has admitted that current forecasts show its base rate could remain under 2% for the...

    Ryanair jetting towards US flights for £10

    Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

    Investing in car parks: a good vehicle for income seekers?

    As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

    A quick guide to guarantor loans – in association with Guarantor Loan Comparison

    Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

    Results round-up: Companies to watch this week

    Mulberry and more will face the music this week.

    Product launches of the week

    Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

    YourMoney.com Awards 2018

    Now in their 21st year, our awards recognise the companies offering the best products and services to consumers

    Money Tips of the Week

    Read previous post:
    shutterstock_240579307
    Five cars young drivers should be driving

    Younger drivers (aged 17-25) are subject to higher insurance premiums as a result of following car fashions, according to research released...

    Close