We have many significant milestones throughout life, and none more so than retirement. Stopping work gives you opportunities to travel, spend more time with family, or spend time on the things you enjoy. With such benefits, it is hardly surprising that many people choose to retire early.
However, ceasing work early can significantly impact your retirement finances. Indeed, you could find that you cannot achieve the lifestyle you had anticipated for your retirement.
Therefore, it’s crucial to be realistic and avoid making life-changing decisions you may regret later. With some planning, you’ll be able to bring forward your retirement date and start enjoying your freedom from work.
This article aims to help you understand if you can afford to retire early and how to boost your retirement funds so you might achieve it.
Can You Afford Early Retirement?
Before you can understand if you can afford early retirement, you must decide on the lifestyle you want. Which magazine conducted an affordability analysis on three retirement lifestyles ranging from essential to luxury.
Their study shows that you would need around £19,000 to sustain a comfortable lifestyle if you lived alone. For couples, this amount would increase to £26,000. These figures give you some idea of the size of the retirement fund you’ll need and, subsequently, how much you need to save each month to achieve it.
Of course, you’ll first need to understand what income you’ll have when you retire.
Assessing Your Retirement Income
You will likely have several income sources on retirement, including the State Pension, private pensions, savings, and other assets. Let’s take a look at each of these.
The State Pension
The State Pension is one of the first things to consider when assessing your retirement income. Indeed, for many people, this benefit makes up the majority of their income, if not all. However, the State Pension doesn’t kick in until you are 66, and the qualifying age is set to increase over the next few decades.
Subsequently, you might not yet qualify to receive this pension if you plan on retiring early. Therefore, you should have other income streams in place to stay within your retirement plans.
Today, thanks to workplace schemes, most employed people have private pensions to support their retirement. Many of these pensions are eligible for pension release, meaning you can access your funds from age 55.
However, you should be mindful about taking too much money too soon if you rely on these funds to last your entire retirement. Depleting your pension pot too soon could leave you short of income later.
Savings and Assets
When assessing your potential retirement income, you should also consider any savings and assets, such as properties. You may have to liquidate some of these if you intend to retire early and have no other sources of income available.
How to Boost Your Retirement Pot
You will need as big a retirement pot as possible to achieve early retirement. Here are a few ways to maximise your funds.
Explore Your Options
Just because you have your money in a particular pension plan doesn’t mean it has to stay there. Not all pension funds perform as well as others, and some come with higher charges.
You can boost your funds over many years by switching to a scheme with even a slight difference in performance or charges. A financial advisor is an ideal person to speak to about moving your funds. Check out Portafina.
Make Additional Pension Contributions
The more you contribute to your pension pot, the more money you will have when you retire. Making regular additional contributions will give your pension a significant boost.
Remember, your pension contributions benefit from tax relief, which applies to all your contributions. Also, your fund gains an advantage from compound interest growth, meaning a small amount invested early can grow into a substantial fund over many years.
It makes sense to put as much money into your pension pot as you can afford. Therefore, you should make additional contributions whenever possible, particularly if you want to achieve early retirement.
Join Your Workplace Pension Scheme
Those who meet the qualifying criteria should be automatically enrolled into their employer’s workplace pension scheme. If you have slipped through the net or previously opted out, you should join your workplace pension scheme immediately.
There are some huge benefits to doing so. Firstly, you are saving for your future. Also, your employer pays into your pot, and you receive tax relief on your contributions. Being in a workplace pension will boost your retirement funds significantly.
Postpone Your Retirement
Since you are considering early retirement, you might view this suggestion with some scepticism, but bear with it. Working for just a few additional years can significantly affect your retirement funds.
Towards the end of its lifespan, a pension fund tends to benefit most from compound interest as that is when it has the most funds. Therefore, consider working for a few extra years to maximise this growth. You can still retire early, just maybe not as early as you expected, and you’ll have more money to enjoy your retirement.
Planning Is Key to Early Retirement
Early retirement is achievable, and many people are enjoying it. However, it takes planning, and you must start as soon as possible to ensure you have enough money to retire early. Hopefully, this article will have helped you understand what you need to do to have an early, long, and comfortable retirement.