Whether it’s planning a cruise around the world, regularly dining out at fine restaurants or even buying a bolthole in the south of France, all of us have an idea of how we would spend early retirement.
Most of us will look longingly at our pension pots and wonder whether we will ever be able to afford to retire early to enjoy the good life. But it’s not impossible to plan for it and achieve it. Here are five tips to help make your dreams of early retirement a reality.
Consider part-time work
One way of benefiting from the freedoms of retirement while you’re still young is to consider a phased early retirement. Nearly half of us are planning to work part time with their current employer or in a new career with reduced hours, or even agreeing to take regular sabbaticals. This could be worthwhile as it would mean paying less income tax. If your your mortgage has been paid off, this may allow you to avoid using your retirement savings to work less. Your workplace pension scheme may permit you to withdraw some money now, increasing the amount later on.
Start saving young
Start saving as young as you can may sound like a given. Most people who are forthright enough to start saving as early as possible enjoy a happier retirement. 4 in 10 people in the UK retire without a pension, so start looking at the best options for you. Those adding more into their contribution pension pot can afford to fund a better yearly income in retirement. You could perhaps do this with small increased contributions over time.
Plan your pension flow carefully
A workplace pension is just one way to help fund life in retirement. While employers’ contributions are a helping hand, they are by no means enough on their own to retire early. Factoring in your state pension when calculating what you’ll need per year can help boost your figures, especially if you decide to top-up your state pension by buying a bridge pension rather than an annuity policy.
Be shrewd with tax breaks
Being canny with your taxes can also help the pennies pile up. If you are part of a defined contribution pension scheme, you can withdraw as much as you want, one quarter of which will be tax-free. Combining this with other income, such as a tax-free isa will keep you below the higher rates of income tax and better off financially in later life.
If you own your own property, you may want to consider downsizing or moving to an area where the property is cheaper, releasing some of the value of your house into readily available income. Alternatively, if you’re young planning ahead, choose to buy a prime property that will in due course allow you to release equity in later life.