Retirement is a time that many of us look forward to. After countless years of hard work and sacrifice, retirement offers an opportunity to wind down and enjoy free time. However, with people living longer and retirement ages rising, it can feel like this time will never come. It’s therefore no surprise that many workers are taking early retirement. Technically you could retire at any age but when we talk about early retirement, we are really only talking about people in their 50’s.
Early retirement may sound like an ideal solution but there are caveats. After all, if it were that easy then everyone would be doing it. Retirement can be extremely expensive and that’s why it requires public pensions, private pensions and savings. This ensures that you have the means to survive financially, without a regular salary. Those who retire earlier, have fewer years to work and therefore less time to save and grow their pensions. Compounding this issue, they will also be spending more time in retirement and will therefore require more money to survive.
Therefore, early retirement is only an option for those who have the means to do so. However, what strategies are available to ensure that this option is open to you?
Finances
As we have established, the major deciding factor on when and how a person can retire, is long-term financial security. Therefore, before even considering early retirement as an option, it’s important to complete a full overview of potential outgoings. These include both day-to-day bills like rent, mortgage, utilities etc, as well as money to live, travel and socialise. Retirement could mean adjusting your quality of life and for some, this could be a deal breaker.
Often the question on whether early retirement is possible is relatively simple. Can you afford to survive, without a salary- if not, then it isn’t possible. However, sometimes there are grey areas, for example early retirement could be possible, with some life changes.
Reduce Debt
One of the best ways to improve your chances of early retirement is by attempting to reduce debt while you’re still working. Of course, debt can include loans, credit cards and finance but it also means mortgage payments. Paying off your mortgage can be a substantial steppingstone towards early retirement but it’s not possible for everyone. Saving money is important but if the options are to save or to pay off debt, always choose debt first. This will keep interest at bay and allow you to save once your debt has been paid.
Pensions
When it comes to retirement, pensions are the main source of income available to you and therefore extremely important in your decision. We all have access to state pension or pension credits, however these are only available once you reach a certain age. The age in question differs for different people but it tends to be 65+ and is continually rising. Therefore, state pension or pension credits will not be helpful in early retirement.
Work-based pensions provide a much more flexible source of income. Contributions are made to these pensions, from you, your employer and the government. This system in which multiple contributions are made and matched offers a lifeline for those hoping to retire early. With this in mind, it’s important for workers to start their pension contributions as early as possible. There is the option to change how much you pay into your pension, so you could start small and build up. The general rule when deciding how much of your salary to pay into your pension is to halve your age and use that figure.
There is also the option for a private pension, which would guarantee another source of income in your later years. However, workers should only consider this a viable option if they have paid off debts and are on top of their current costs.
Retirement planning can be confusing, especially with different types of pensions involved. Fortunately, the experts at Salhan Accountants offer a comprehensive pensions and retirement planning service. For those looking for reassurance and experienced advice, look no further than Salhan.
