Article

6 tips on how to retire early

An early retirement and financial freedom is the aim for lots of us. But as life expectancy and living costs are rising, is retiring early still achievable?

| 8 min read

Let’s face it, we’d all love to retire early. Enjoying a round of golf or exploring a new holiday destination is much more appealing than working the nine to five.

However, rising retirement costs, and the fact we continue to live on for longer has cast a shadow of doubt over many people’s retirement aspirations. Nearly 100,000 retirees have returned to work since the cost-of-living crisis. And this year, the UK also recorded its lowest number of early retirees in nearly 30 years.

If you’re considering an early exit from the workforce, you’ll need to put some building blocks in place to make sure you can meet your retirement needs.

What age is considered an early retirement?

Retirement means different things to different people, but for most it represents ‘financial independence’ – i.e the ability to live off your own resources without having a job to support income needs.

An early retirement tends to mean achieving financial independence before state pension age in mid-sixties, but situations vary. Successful business people, for instance, may have the resources to bow out significantly earlier, while some careers such professional sport can be high earning but necessarily end much sooner.

In the initial stage of retirement, it’s often about enjoying life to the full and ticking things off the bucket list. Expenditure may then drop as you wind down and become less active, but then increase again, perhaps as care needs rise later in life. Lots of people end up overestimating their health or underestimating their longevity. As life expectancy increases, the average time spent in retirement is nearly 20 years – more than double that of our grandparents. But, like many things in life, it partly comes down to chance.

In simple terms, full retirement means that your outgoings over the rest of your life must not exceed your income plus your remaining resources in the form of savings and investments. That’s a hard computation to make in many cases. You will need to consider your pension and other income versus your expenditure and varying needs as you age.

At the same time, you need to consider investment returns and the impact of inflation – rises in the cost of living. As we are seeing at the moment, everyday prices can move upwards at quite a pace and rapidly erode the spending power of a fixed income or cash savings.

6 tips on how to retire early

1. Know your pensions rules and regulations

The rules around pensions are complex and ever changing, so it’s important to stay up to speed. For most pensions, you can take benefits from a personal pension at aged 55, or 57 from 2028 onwards.

The public sector still provides defined benefit schemes or final salary pensions where your retirement fund is based on your salary and years of service. However, this isn’t always the case so it’s worth checking with your scheme provider.

In the private sector, lots of companies offer employees a pension based on what you and they contribute, plus any investment returns, rather than being linked to a salary. This means your income in retirement is less certain.

Most people are eligible for the government state pension once they reach state pension age – currently 66 (67 from April 2026). From 6 April 2024, the full state pension is £221.20 a week (£11,502 a year).

To qualify for the full amount, you’ll need to have paid or been credited National Insurance contributions for 35 years. You can get a State Pension forecast on the Gov.uk website.

2. Pay off debt

Paying off any short-term debts and repaying your mortgage (or being close to doing so) is one of the most important ways to prepare for retirement financially.

Lowering your monthly outgoings on things like mortgage payments, car loans or credit card debt whilst you’re still receiving a regular income will mean avoiding dipping into your pension pot immediately.

We would recommend paying off debt with the highest rate of interest first. Any outstanding debt on student loans can usually be left until last.

3. Understand your basic income requirements

Try to understand and work out how much expenditure you will need as a baseline, and how much you would like on top for luxuries, such as holidays and eating out.

The Pensions and Lifetime Savings Association (PLSA) provide research on the cost of retirement living standards. This can help picture of how much your chosen lifestyle could cost in retirement.

Minimum
ModerateComfortable
Single£12,800£23,000£37,300
Couple£19,900£34,000£54,500
What standard of living could you have?Covers all your needs, with some left over for funMore financial security and flexibilityMore financial freedom and some luxuries

Source: Pensions and Lifetime Savings Association – Retirement Living Standards. Figures based on per year.

On top of that, you’ll want income or savings from which to draw in order to enjoy life. Importantly, you’ll also need to keep an emergency cash pot on hand in case of emergencies – we recommend around three to six months’ worth of expenditure.

Calculate if you’ll have enough for the retirement you want with the Pension Contribution Calculator.

4. Calculate your total income

An important step is to add up your pensions income and other income to see if it can meet your needs. This can include things like dividend income from investments, or perhaps rental income from properties. It’s important to remember income from investments isn’t guaranteed and can vary.

If you’re looking for a guaranteed income in retirement, you can consider taking out a lifetime annuity. This is where you’re paid a stated amount of income for the rest of your life in exchange for an upfront lump sum.

All of these can contribute towards your meeting your needs, but it’s important to plan carefully how to take income from different sources to ensure your affairs are as tax efficient as possible and to cater for any other objectives such as inheritance planning.

5. Consider semi-retirement

Retirement is a big change. Not only from a financial perspective, but an emotional one too. To the people wondering if it’s a good idea to retire early – have you ever considered a semi-retirement?

A staggered approach to retirement by reducing your days/hours or changing to a part-time role means you can continue to receive a regular income, but also have more ‘you time’ to do things you enjoy. Should you take a mini-retirement?

6. Get financial advice

Whether you want to retire as early as you can, or it still feels like a long way off, speaking to an expert can help you create a financial plan that provides flexibility and security for when you retire.

If you are uncertain about which options are suitable for your circumstances, take appropriate regulated advice or guidance.

Pension Wise, the Government’s pension guidance service, provides free, impartial information to help you understand your options at retirement, or discover more about retirement planning services.

Need help with your retirement plan?

Retirement planning can be complex and these tips are just a starting point. Talking to a professional can give you peace of mind that you’re on the right track.

Financial Coaching offers an educational session based on the topic of your choice so you can get the most out of it. We offer a free, no commitment, 15-minute call with a qualified professional to discuss your needs, and after that each one-hour coaching session is charged at a one-off fee of £150 (including VAT).

Alternatively, a Financial Plan will help you understand your current situation and give you a clear action plan tailored to meet your needs. Each of our Financial Plans provides clarity around a frequently-asked question – from retirement planning to inheritance tax.

See all Financial Plans

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Are you saving enough for retirement?

Get an estimate on how much you’ll have for the retirement with our Pension Contribution Calculator.

See more

More insights

Article
UK General Election: No return for the pension lifetime allowance but other pension reforms likely
By Rob Morgan
Spokesperson & Chief Analyst
14 Jun 2024 | 5 min read
Article
How to combat drawdown risk
By Rob Morgan
Spokesperson & Chief Analyst
31 May 2024 | 6 min read
Article
Uncrystallised funds pension lump sum (UFPLS) explained
By Rob Morgan
Spokesperson & Chief Analyst
20 May 2024 | 7 min read
Article
Is it worth deferring the state pension?
By Rob Morgan
Spokesperson & Chief Analyst
16 May 2024 | 5 min read

The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.