57 isn’t my golf handicap
How I plan to retire early (by Fraser, aged 26)
I recently read a magazine article which stated that 1 in 3 of us under 35 is dead set on retiring before they hit 61. And another report said that if you want a happy retirement, then you’d need to have at least £500k as a minimum. Recent research from the PLSA’s Retirement Living Standards group estimates that you would need just over £23,000 to live comfortably, provided you’re on your own. That figure jumps up to over £34,000 if you’re in a relationship.
Factor in longer lifespans and the money you need becomes significant, doesn’t it?
But I’m aiming for 57. Why you may ask?
This is currently the age at which we can start to access any workplace or private pension plans that we may have.
(Sadly, we have to wait until 66 to get the State Pension, and that is set to rise to 67 by 2028!)
The thought of early retirement does sound appealing, as no doubt it probably does to you too – it’s young enough to still do activities and make memories with my family. Retiring later on in life brings more uncertainty – what happens if I’m in ill health and cannot physically work? Does that mean retirement becomes a burden to be endured, rather than enjoyed?
But for the rest of us – is it possible to retire at 57?
It may be possible if we follow these strategies…
Visualise your retirement
Imagine yourself approaching 57 – what does it look like? Are you living it up? Free, single and ready to mingle?
Maybe you’re living with someone. Maybe you have children.
You might have considered moving abroad, to soak up the sun whilst practising your golf swing.
You might want to buy a car or have the occasional holiday instead.
The more specific you can be with how you want to spend your retirement, the more prepared you are.
How much will you need?
By now, you’d be forgiven for thinking that it seems impossible to retire early!
Okay, now it’s time to start thinking about how much money you’ll need to have by 57.
You also need to factor in that you’ll need enough money to live for another 20-30 years. This is because life expectancy levels are going up each decade. A rough rule of thumb is your current yearly salary times 20 or 30 (to factor in how many years you probably have left!)
If you plan to maintain your lifestyle and enjoy yourself then you might need to save more money.
Lastly, as morbid as it sounds, you may also need to plan for medical bills as well – just because we’re all living longer it doesn’t necessarily mean you may enjoy good health.
If this all sounds like a lot of money right now, you do have one thing in your favour – time.
Pay into a pension
Sounds simple, doesn’t it? And yet, the longest financial relationship you’ll have is the one that is most neglected.
Thanks to Auto Enrolment, all working adults are now auto-enrolled into a workplace pension plan as soon as they reach age 18.
One of the ways to boost your pension pot which is often overlooked is with tax credit. Anyone paying the basic tax rate (20%) can pay in £100 and get their contribution increased by 25% automatically.
How much can you pay in?
You can currently pay in a maximum of £60,000 per year which is known as the ‘annual allowance’.
It’s probably safe to say that unless you’re already on good money, this amount is unrealistic for the majority of us who are still of working age.
One suitable alternative would be to use any payrise you get – topping up your pension with any salary increases you get is better than adding nothing. It is also worth noting that you can currently backdate up to three years your pension contributions. So if you do come into some money, this could be worth looking into.
Keep your pension paperwork
On average, UK adults will have changed jobs 11 times by the time they reach 45.* That’s potentially a lot of paperwork that could be floating around. And I bet that whilst you have updated your delivery address for online shopping, you may not have done so for your pension.
Read your annual statement
It may not be the most thrilling piece of literature you’ll read (that honour goes to the monthly bank statement) but it’s an annual statement that could help point you the right way.
Treat it as you would an eye test or a dentist appointment – get it done and ticked off your ‘To Do List’.
As unexciting as it may be, you’ll see the charges on your pension and which funds your money is invested in – and if you decide that perhaps you’d prefer a more ESG-friendly approach, that the charges are too high or that your investing style is either too cautious or not risky enough, you have the power to change this.
Get help where needed
Some people would rather have a filling than deal with their finances.
Your pension remains your longest financial commitment so if you do feel unsure about what you have in place, or how many pensions you potentially may have, it is usually best to seek financial advice.
Life, however, has a habit of getting in the way of plans made so who knows where I’ll be by then.
Probably practicing my short game…!
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested. The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
* – Gretel, April 2022
