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Retirement is likely to be the longest holiday of your life and we all know that holidays are expensive. If your goal is to retire at 55 or 60, read this article to help you turn this dream into reality.

Article by Akwasi Duodu

What do you need to do to retire at 55 or 60?

Retiring is when you choose to stop working. You should at this point, have fewer financial commitments. Your children would have flown the nest and your mortgage, and any other debts paid off.

One would think your income needs would be less than while working.

This might not necessarily be the case with so much free time on your hands. Retirement is likely to be the longest holiday of your life and we all know that holidays are expensive. So, planning for retirement is crucial, especially planning for early retirement.

Article summary

Here’s a brief overview of what you’ll learn in today’s article:

  • The importance of planning for retirement, particularly if you want to retire early
  • Minimum, moderate, and comfortable retirement incomes explained
  • How much you would need to have invested in a pension to retire at 55 or 60
  • The role of specialist pension advisers and the benefits of engaging one

Looking to retire at 55 or 60? Keep reading this article.

Looking for an early retirement?

More and more people are interested in retiring early. With the state pension age current set at 68, the thought of a further eight years in the workplace after age 60 is unpalatable for many.

The freedom retirement offers is very appealing, especially if one can enjoy one’s retirement doing what one wants to.

Time is life’s most precious commodity and in retirement, one typically has free time in abundance. Whilst everyone’s lifestyle differs and there’s no one size fits all, the common thread is that it takes significant resources to enjoy a fulfilling retirement.

What is a comfortable retirement income in the UK?

One of the biggest problems with retiring early is that the state pension, currently £10,600 per annum for the full amount, may still be some way off.

As a result, many of us ask how much money we will need for a comfortable retirement.

It is estimated that in retirement, a single person would need £14,400 per annum to achieve the minimum living standard. £26,000 would be needed for a moderate retirement and £37,300 for a comfortable retirement.

Without the state pension top up, you’d need a fund of at least £300,000 in retirement for the minimum living standard, a fund of at least £520,000 for a moderate retirement, and £750,000 or more for a comfortable retirement.

Because retiring early involves drawing on your pension fund for longer, the earlier you retire, the larger the fund you’d need. It doesn’t end there.

Throw in unpredictables such as inflation, fund performance, annuity and interest rates and health into the mix and it becomes a much more complex calculation.

How much money would I need to retire at 55?

A question we are often asked is ‘how much do you need to pay into a pension?’

For a moderate retirement, we believe that you’d need £600,000 or more in your pension fund at age 55. £600,000 is a significant sum.

To build a pension fund of this size, you’d have to make significant pension contributions and start at a young age.

At the relatively early age of 55, annuity rates would be poor, so options such as income drawdown would need to be considered. Importantly, the earliest age you could start withdrawing your pension will change from 55 to 57 from 6 April 2028.

How much money would I need to retire at 60?

For a moderate retirement, we believe that you’d need £550,000 or more in your pension fund at 60.

You’d have 8 years to go before the state pension kicked in, at which point you could reduce the withdrawals from your pension pot. Annuity rates also tend to get more generous the older you are.

Estimating your retirement needs

Engage a pension advice specialist to help you plan for early retirement. They would have specialist cashflow modelling tools to help demonstrate how long your money would last in retirement.

Furthermore, they could consider assumptions for inflation, annuity and interest rates and fund performance to crate what-if scenarios for you to consider.

Lastly, they would also be able to steer you on whether an annuity or income drawdown or a combination of both would be most appropriate for your circumstances.

The one constant is this: start early. The best time for you to have started planning for early retirement was many years ago. The second-best time is now.

Article FAQS

Here are a few questions you may have after reading this article.

How can I maximise my savings if I want to retire early?

You can do this by contributing the maximum amount allowable into your pensions and taking advantage of employer and government contributions.

Furthermore, tax-efficient savings accounts like ISAs are another thing to consider.

Additionally, if you are looking to retire early at 55 to 60, reduce expenses by budgeting strictly and being careful with your money. Lastly, if you start saving towards your early retirement at a young age, you will benefit from compound interest.

What investment strategies can help me retire at 55 or 60?

As pensions are a tax-efficient investment they are a particularly good place to start. In addition to the money you invest, you can take advantage of employer and government contributions.

This is a bit like getting a free financial boost each time you pay into your scheme.

Furthermore, ISA, investment funds and bonds are other investments to consider. Lastly, investing in a buy-to-let property could provide an additional income stream in retirement.

How do I account for unexpected expenses in retirement?

One of the ways to do this is by setting up an emergency fund separate from your retirement savings. The amount is completely up to you.

I guess the question is would you feel more financially secure and worry-free if you could cover at least six months of living expenses, as opposed to one? Furthermore, consider insurance policies to protect you financially, and have a plan for the event of you needing long-term care.

What is the difference between annuities and income drawdown?

Annuities provide a guaranteed income for life or a fixed term, reducing financial risk but offering less flexibility.

Income drawdown allows you to withdraw money from your pension pot as needed, offering flexibility and potential growth but with higher risk, as funds are subject to market fluctuations.

How do I manage risk when investing in a pension?

Whilst we cannot offer direct advice, diversifying investments across different asset classes can help you manage investment risk.

Having an understanding of how you feel about risk will help guide you toward the most appropriate investments. Furthermore, consider regularly reviewing and adjusting your portfolio to match your risk tolerance and life stage.

Lastly, if you feel daunted by the prospect of doing this yourself, consider working with a financial adviser. At Sterling & Law, we offer a free consultation.

Call us today on the number below to request a callback with an experienced financial adviser.

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