Do you want to retire early? Here’s the six major things to consider first.

Key Takeaways:

 

  • Early Retirement is a Major Financial Decision: It requires meticulous planning, a significant pension pot, and a clear understanding of your future spending needs. Relying on guesswork can lead to significant financial hardship later in life.
  • Know Your Number: The amount you need to retire comfortably varies for everyone. It’s crucial to calculate your expected retirement income and expenses. A good starting point is my free retirement calculator which you can access here.
  • Trial Runs Can Be Invaluable: Consider a sabbatical or a gradual reduction in working hours to “dip your toe” into retirement. This can help you adjust both financially and psychologically.
  • Beware the Pitfalls: Underestimating longevity, the impact of inflation, and the potential for unexpected costs are common traps. Having to “un-retire” can have significant financial and emotional consequences.
  • Working in Retirement – A Viable Option?: For some, continuing to work in a different capacity can offer financial flexibility and a sense of purpose. For others, it can feel like a step backwards. We’ll weigh the pros and cons.
  • Seek Professional Advice: The complexities of pensions, investments, and tax planning mean that professional guidance is invaluable. An Independent Financial Adviser (IFA) can help you create a personalised roadmap to a secure retirement.

For many, the prospect of leaving the world of work behind ahead of schedule is the ultimate dream. Imagine more time for hobbies, for family, for travel, or simply for enjoying the beautiful countryside we have on our doorstep here in Worcestershire. From the Malvern Hills to the Vale of Evesham, a life of leisure and freedom awaits. But what does it really take to make this dream a reality?

As a Worcester-based Independent Financial Adviser, I’ve helped countless individuals and couples navigate the journey to and through retirement. The key to a successful early retirement lies in robust financial planning and a realistic understanding of the road ahead.

The Financial Bedrock of an Early Retirement

Retiring early means your pension pot needs to last longer. It’s as simple as that. The State Pension age is currently 66 for both men and women, with plans to rise to 67 and beyond. If you retire at 55, your private pensions and investments need to bridge at least an 11-year gap until your State Pension kicks in, and then supplement it for the rest of your life.

 

The first step is to get a firm grip on your current financial situation. This means knowing:

 

  • The value of your pensions: Both workplace and private pensions.
  • Your other investments: ISAs, shares, property, etc.
  • Your outstanding debts: Mortgages, loans, and credit cards.
  • Your current expenditure: A detailed budget is non-negotiable.

Once you have this information, you can start to project your retirement needs. A common rule of thumb is to aim for a retirement income of between half and two-thirds of your final salary. However, your individual circumstances will dictate the right figure for you. You might find that with your mortgage paid off and no more commuting costs, your outgoings are significantly lower. Conversely, you may want to budget for more travel and leisure activities.

To get a clearer picture of whether you’re on track, you can use a retirement calculator. I invite you to use my free retirement calculator here:

https://andrewrankinfinancialplanning.com/retirement-fund-calculator/

to get a personalised estimate of the fund you might need.

"Un-Retirement": The Risks of Returning to Work

A recent trend has seen a growing number of retirees returning to the workforce, a phenomenon dubbed “un-retiring.” While for some this is a choice, for many, it’s a necessity driven by the rising cost of living or an insufficient pension pot. Having to return to work after you’ve mentally and financially committed to retirement can be a significant blow. The risks include:

 

  • Financial Strain: Your carefully planned drawdown strategy will be disrupted. If you’ve already started taking an income from your pension, you may have triggered the Money Purchase Annual Allowance (MPAA), which significantly reduces the amount you can continue to save into a pension tax-efficiently.
  • A Changed Workplace: The working world moves quickly. You may find that your skills are outdated, or that the workplace culture has shifted.
  • Emotional Toll: The sense of failure or disappointment can be profound. It can also be challenging to readjust to the structure and demands of a job after a period of freedom.
  • Ageism: One of the most significant, yet often underestimated, risks of returning to the workforce after an early retirement is the pervasive issue of ageism. While you may bring a wealth of experience and a strong work ethic, a potential employer might only see your age. There’s a tangible risk of being overlooked for roles you are perfectly qualified for, as hiring managers may hold subconscious biases, favouring younger candidates they perceive as having greater longevity with the company, being more adaptable to new technology, or fitting in better with a youthful company culture. This can lead to a frustrating and demoralising job search, where your carefully crafted CV is repeatedly set aside, leaving you in a vulnerable position, particularly if the return to work is driven by financial necessity rather than choice

Dipping Your Toe in the Water: The Sabbatical Solution

If you’re financially secure enough to consider early retirement but are hesitant to take the final plunge, a sabbatical could be the perfect solution. Taking an extended break from work can allow you to experience the reality of retirement without making an irreversible decision.

A sabbatical can help you to:

 

  • Test your budget: Can you live comfortably on your projected retirement income?
  • Explore your interests: What will you do with all your free time? A life of leisure in Worcestershire could involve anything from walking the Cotswold Way to taking up a new hobby at a local club.
  • Adjust psychologically: The transition from a structured working life to complete freedom can be jarring for some. A sabbatical gives you a chance to adapt.

It’s important to note that a career break will likely mean a temporary halt in your pension contributions, so the long-term impact on your retirement savings needs to be carefully considered.

Common Pitfalls of Early Retirement

Even with the best-laid plans, there are common pitfalls to be aware of:

 

  1. Underestimating Longevity: We are living longer than ever before. A retirement that could last 30, 40, or even 50 years needs a pension pot that can go the distance.
  2. The Silent Threat of Inflation: Inflation erodes the purchasing power of your savings. A retirement plan that looks healthy today could leave you struggling in 20 years’ time if it doesn’t account for rising prices.
  3. Unexpected Costs: From major home repairs to the need for long-term care, life has a habit of throwing financial curveballs. Your retirement plan needs a contingency fund for these unforeseen events.
  4. Boredom and Loss of Purpose: For many, work provides a sense of identity and social connection. It’s crucial to have a plan for how you will fill your days and stay mentally and socially active. Here in Worcestershire, there are numerous volunteering opportunities and community groups that can provide a new sense of purpose.

To Work or Not to Work: The Post-Financial Independence Dilemma

What if you’ve reached your financial independence number but still enjoy your job? Or perhaps you’re considering a less demanding role to keep you active and bring in some extra income. There are both benefits and drawbacks to continuing to work when you have enough money.

Benefits:

 

  • Financial Security: A continued income stream can provide a valuable safety net and allow for a more lavish lifestyle in retirement.
  • Social and Mental Stimulation: Work can keep your mind sharp and provide a ready-made social circle.
  • Sense of Purpose: Many people derive a great deal of satisfaction and identity from their careers.

Drawbacks:

 

  • Less Free Time: The primary reason for retiring early is to have more time for yourself. Continuing to work, even part-time, will eat into this.
  • Stress and Responsibility: Even a low-pressure job comes with a degree of stress and responsibility that you may be looking to escape.
  • Health Implications: If your job is physically or mentally demanding, continuing to work could have a negative impact on your health.

Ultimately, the decision of whether to continue working is a personal one. It’s about weighing up what matters most to you in this new chapter of your life.

Author:

Andrew Rankin BA (Hons), DipPFS

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Your Next Step

Navigating the path to early retirement can be complex, but you don’t have to do it alone. As a Worcester-based IFA, I can help you to create a tailored financial plan that reflects your unique goals and circumstances.

 

Ready to start the conversation about your early retirement? Contact me today for a no-obligation consultation.

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Risk Warnings

  • The value of your investments and any income from them can go down as well as up, and you may not get back the original amount invested.
  • Past performance is not a reliable indicator of future performance.
  • Tax treatment depends on individual circumstances and may be subject to change in the future.
  • This article is for informational purposes only and does not constitute financial advice. You should always seek professional advice before making any financial decisions.

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