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How to Retire Early; Everything you need to know

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How to Retire Early – Checklist

Everyone wants to retire early, but not everyone is willing to do the work necessary to save for retirement. That’s the gist of the problem people face with early retirement dreams.

It takes work; not extreme amounts of work. But it does require certain lifestyle and mindset changes, which most people aren’t willing to make.

Sacrifices will need to happen as well, which may cause you to feel like early retirement isn’t worth the effort. But if you can overcome all these obstacles and hurdles, you could be well on your way to retiring at 55 (or earlier).

Keep reading for some of our tips on pre-retirement planning, so you can get to your goal of early retirement faster and easier.

Figure Out How Much Money Is Needed for Retirement

You will want to calculate the living expenses you will need for your retirement and figure out exactly how much money you will need annually to live the way you want to. This will inform you of how much money you need to have in your retirement plans at the age of 55 (or whatever age you wish to retire).

Be careful when making this prediction. Don’t be overly conservative or liberal. It might be worth using a pension calculator, however even these have their own drawbacks.

If you know you can’t live a minimalist lifestyle because you are a bit of an extravagant person, then don’t pretend you can change once you retire. Or, if you travel quite a bit now, don’t assume you will stop doing that once you retire (in fact, you will probably travel more as you will have more free time).

The more honest you can be with your budget, the more accurate your retirement plans will end up being.

Start Where You Are

Begin by evaluating what your financial situation is right now. Retirement is a long-term strategy that has to be right. You can’t begin a long journey towards retirement if you don’t know your starting point.

Calculate your net worth and then figure out how much further you have to go to get to your retirement goals. How much money do you have to save each year and then each month? What investments do you already have and what more do you want to build?

Make sure to also build the baby steps of retirement, that is, having an emergency fund, paying off all your debt, paying off your home, and saving for your children’s education.

Don’t get cocky and believe that you don’t have to worry about the basics, if you are focused on such a huge goal of retiring early. If your foundation isn’t right, your house of cards is going to fall pretty soon.

What Kind of a Lifestyle Do You Want Post-retirement?

This is another thing you will want to think about while creating your budget. There are so many aspects to a retired lifestyle that people don’t think about until it’s too late.

For example, if you have a history of ill health or some other chronic disease in your family, it might be a good idea to take into account your life expectancy and consider if you need to account for a higher cost of living in late retirement. 

Make sure you build a budget according to what you want your lifestyle to be, rather than what you believe would be easier or what others would prescribe for you.

You don’t want to live a retired life that’s devoid of happiness, joy, and peace. Most people want to live comfortably in retirement . Having the right advice will allow you to live the life you want during retirement, on your terms, whatever they might be.

Build Several Different Sources of Income

You mare most likely aware that the last three years have been very difficult for investment markets. Even in retirement investment markets will fall and rise . Withdrawing money at a time when markets are depressed is called sequence risk. If possible this should be avoided due to its long term impact on your financial plan. In some cases it might be preferable to increase the amount of debt you have rather than take money from investments that are undervalued. 

Most people will have income from more than one source and this is good.  Having income from more than one source gives you flexibility as well as diversifying risk. 

That’s why you will want to prepare for all eventualities by not relying on one source of income for your retirement. Think about diversifying as much as possible.

These are some sources of income to consider:

  • Property and Real estate income
  • Use your tax free allowances such as ISA’s
  • Consider part time work. This is good from an income and mental well being perspective.
  • Factor in your state pension when you reach state pension age
  • Use savings that are subject to income tax first.
  • If you could receive any lump sums, gifts or inheritances in the future you might want to factor these in
  • Reduce any debt  including, mortgages thus having more disposable income.

The possibilities are endless nowadays and as long as you don’t overindulge in one investment over another, your retirement goals should be reachable without issues.

Push as Much Money Into Retirement as Possible

The retire-early crowd knows that time is limited, so they start early and invest often. A lot of people start investing when they were in their teens or twenties. And many invest a large proportion of their income into investments.

You may not have this ability. Maybe you are already in your 40s and have just started investing. Or maybe you have many expenses to consider.

Whatever your situation is, it is possible for you to retire early, but you have to push as much of your income into investments as you can.

Got a tax refund from the government? Don’t spend it, invest it.

Got a bonus at work? Don’t spend it, invest it.

And so on.

Don’t Lose Hope, Stay Patient, and Steady

Stay patient with your retirement goals, because as soon as you start getting impatient and worried, you could possibly make mistakes or poor decisions. That’s just the way it is.

Whilst making one mistake might not have an impact on your retirement plans, often mistakes come in three’s.  

This is not the way you are going to get to your goal of retiring early. In fact, this is a surefire way to lose all your monies and have to postpone your retirement indefinitely.

Get a Financial Adviser to Help You Through the Process

If you feel like you are not the most discerning of investors and could do with some objective expertise on your side, then get a financial adviser to help you in your journey towards retirement. Why go at it alone?

Even Tiger Woods had a coach by his side, although he is considered to be the greatest golfer that ever lived. So who are you to go without assistance?

The trouble with early retirement is that it’s a lonely path. Not many people are willing to spend their time thinking about early retirement strategy or are willing to do what it takes to get there.

Most people are about instant gratification. And retiring at 55 is anything but that.

So you will want to bring advisers into your circle who will assist and support you in this long journey towards retiring at 55 (or earlier).

A good financial advisor will also be able to suggest various investment avenues for you that you might not have thought about or had an insight into.

Stay Flexible About Your Retirement Age

You might have an image in your head of wanting to retire at 55. And that age is etched into your mind as THE age that you want to retire.

But what if circumstances change? What if you are able to retire even earlier than 55? Or what if you could have a lot more money in your retirement if you worked for 2-3 years extra?

Don’t get married to the idea of retiring at a certain age, whatever it might be. Stay flexible on this early retirement journey. You never know what the financial environment is going to be like when you decide to retire, so you can make any early assumptions.

Consider Property as part of your Retirement Plan

No matter what other investments you are considering in your quest for early retirement, you might want to consider property as part of it. Lots of people in the UK have and are using property for retirement income. 

So don’t let fear or doubt hold you back. You don’t have to build a property empire or anything like that.

But having a couple of single-family or multi-family properties that give you passive income is ideal. You can use that cashflow to put extra money into your retirement plans, or you can use it as a source of income during your retirement. Or both.

It depends entirely on how you wish to spend your retirement. Maybe you aren’t interested in taking care of tenants when you retire. If so, you can sell these properties and use that cash to supplement your retirement. You do however need to be aware of the tax implications as property that is not your principle residence will be subject to capital gains tax. 

Everyone’s situation is going to be different, so you will want to make decisions that are suitable to your retirement dreams and hopes.

Avoid Risky Investments Like Crypto or Forex

When you are first starting out on your early retirement journey, you can be more of a risk-taker. This is because you have time before your retirement age comes into view, time to make mistakes and fix them.

But as you get closer to your goal, you will want to review your savings and investments, making sure you do not take too much risk such as investing into crypto, futures, or art and into something more solid and stable.

Don’t think that you are boring or staid by doing this. Instead, you are being smart and thinking forward.

Also, diversification will be key here, so you don’t want to put all your eggs into one basket. If all your retirement savings are in one cryptocurrency (even if it’s a solid one like Bitcoin), it puts you at risk of losing it all when a crash comes.

Many folks who thought they would have smooth sailing towards their retirement goals were completely surprised by the crypto crash that came in 2022.

Bitcoin lost 60% of its value in 2022, so anyone who had focused entirely on this investment for their retirement plan  would have had to rethink their strategy entirely. And maybe stave off retirement for another few years while Bitcoin comes back up again (slowly).

Retire Early by Staying Focused On Your Goal

You are going to have to make many sacrifices when you decide you are going to retire at 55. Also, you will have to ensure your family’s in the loop with these sacrifices.

Everyone needs to be onboard with your decision to retire early.

Don’t want to go at it alone? We are independent financial advisers who wish to help you reach your retirement goals, whatever they might be. Contact us to get the expertise that will propel you to financial freedom.

Frequently Asked Questions

Is there a correct way to retire early?

The best way to retire early is to make adjustments to your current budget, calculate annual retirement spending, estimate total savings needs, invest for growth, and keep expenses in check.

Can I retire at 55 in the UK

In the UK, there are no age restrictions on retirement and pension pots can be accessed from age 55. However from 2028 the minumum retirement age is to increase to 57.

How much money do I need to retire at 55 in the UK?

In order to retire at the age of 55 or 57, a minimum pension pot of £500,000 is required. Additionally, it is important to have a well-planned retirement strategy.

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Important Information

This article is not intended to be financial advice. It is important to consult a professional when considering Investing. The value of investments can change, and it is possible to lose money.