Retirement offers a world of newfound opportunities to travel the world, see new places or achieve goals that were impossible when working full-time. Early retirement is often seen as an impossibility for many of us. Here, Acumen has compiled our top 10 early retirement tips to help make your dreams a reality.
1. Start early if possible
Time is the most important factor in building wealth. Those who have been investing in their future and putting money towards a pension since they were young are likely to have more money by the time they retire.
This is because early savers find that their money has longer to multiply. A slow and steady process, saving little and often, relieves pressure in later years. Make sure you seek appropriate early retirement planning advice to ensure your retirement reality matches your lifestyle expectations.
2. Form a retirement strategy
Until you have a retirement strategy, there is no way of telling how you should save. Your plan should include the three stages of saving. These are: aggressive accumulation throughout your career; the continued growth of assets during semi-retirement; and accumulated assets during final retirement when earned income ceases.
Of course, your ‘spend:save’ ratio will change depending on your stage in life and your plan should reflect this. If you are having trouble formulating a plan, Acumen has some of the region’s most knowledgeable pensions experts, who can give you thorough, up to date and impartial financial advice.
3. Use your property to help
By the time you wish to retire, your mortgage should ideally be paid off. If this is the case, and you own your home outright, some people may contemplate the possibility of selling. If this is a possibility,by putting your property on the market, and hopefully selling for a profit, the funds could then assist your retirement plans.
By selling your property you are free to move to a smaller house, different region or another country if you wish. Make sure you do your market research before you sell to ensure you recoup the optimum value. If this isn’t an option or it doesn’t appeal to you, you could always speak to Acumen’s advisers for advice on equity release and its options and this is a way of freeing up some capital “locked in “ your home without having to move house.
4. Know your investments
Investing your money is one of the best ways to stop spending it. Investing in shares can have a high return rate and help you to fund your early retirement, though it isn’t a decision to be taken lightly and you need a properly structured plan. So, do your research and seek investment advice from Acumen to find out how we can reduce the risk and the volatility and still give you the prospect of inflation-beating returns.
While investing is definitely worthwhile, it’s important to do proper due diligence about where you invest your money. Here at Acumen we conduct research around the investments we recommend and if you are making investment decisions you need to do too. If you are “going it alone” you need to spend time looking up the history of the company, its shareholders, the company’s predicted future success to name just a few essential background checks before you part with any money.
5. Find the best pension provider
Before choosing a pension provider, make sure you’ve done your market research. Expensive exit fees and provider charges make changing your pension difficult, so make an informed first decision. Your choice of pension provider should be based on what you want to achieve.
Pension freedoms have made it easier for people to access large sums of money from their retirement fund. Annuities are still an option. Try and research the different pension plans available and seek advice to make sure the plan you choose is a good fit for you. Remember that it’s essential to make sure you have a sustainable income for the whole of your life.
6. Small changes make a big difference
Could you live with one fewer £4.50 lunchtime meal deals a month? If so, you might be surprised how much of an impact that additional loose change could make to your early retirement plans. Let’s say you’re 30 years old and contribute £150 net to your pension every month. If you increased your contributions by 3% each year (that’s £4.50 in the first year), then by 65 you could find yourself sitting on an extra £90,433 in your pension.
That’s assuming you receive basic tax relief and your fund grows 4% a year after charges are taken into account. This is just an illustration, of course, based on today’s terms, without factoring in inflation. However, we hope this gives you an idea of just how big a difference those small changes can make to your pension prospects.
7. Hunt down old pensions
The likelihood of employees remaining with the same employer for life have dramatically decreased. In fact, according to research by Investec Click & Invest, the average Briton is likely to have six jobs over the course of their lifetimes. For Millennials, aged between 18 and 34, that figure rises to an estimated 12 jobs! That means British workers need to keep track of 6-12 pension schemes. Unsurprisingly, a lot are struggling, with an estimated £5 billion of lost pensions in the UK.
Ensuring everything is in order with your old pensions is a vital element of planning for early retirement. If you’d like to locate an old pension, but the details are hazy, then you can track down your pensions using the government’s Pension Tracing Service. Depending on your situation, it might be beneficial to merge your pensions into one scheme or bring them under a single investment wrap service. However, you should always speak to a financial adviser first to discuss your options.
8. Test drive retirement
This might sound like a counterintuitive tip for a blog about how to retire early. However, have you considered easing into early retirement, rather than giving up work for good? Although the idea of endless freedom might seem appealing on paper, some people find the finality of life after work and the loss of routine a surprisingly difficult transition.
As a halfway house, you might like to consider either dropping down to part-time with your current employer or continuing full-time and negotiating regular sabbaticals with them. The payoff for your employer is that they retain your experience and expertise, while you might be able to live off these wages without denting your pension savings and pay lower taxes in the process.
9. Maximise available tax breaks
Minimising the tax you pay in retirement is nearly as important as saving for retirement. Remember that 25% of your pension fund up to the Lifetime Allowance, can be withdrawn tax-free. Beyond that point it becomes subject to tax. Combining your income from a taxable source like a pension with tax-free income from an ISA, can help you to maximise your personal allowances and basic-rate income tax band. This can enable you to avoid higher and sometimes even basic-rate tax.
10. Put a price on lifestyle
As part of your retirement strategy, the nearer you get to your early exit stage you’ll want to consider exactly how much your preferred lifestyle might cost. This means taking some time to draw up some specific costs for your retirement non-negotiables. A common misconception is that costs will reduce in retirement. However, given more time and energy to do the things you love – be that travel, hobbies, spending time with family – it should come as no surprise that your costs could actually increase. Therefore, drilling down to the cold, hard figures of how much you’d like to spend on your favourite pursuits, will focus your saving efforts in the final five years before you make your bid for freedom!