BACK early is an attractive idea, especially as the state pension age is rising, but you need to start saving now.
You can retire early, but you need to budget for it by saving more over the course of your working life – pension expert Sarah Pennells shares her top tips.
To retire at 55, about 11 years ago Current state pension age, you will have to save around £640 a month.
That figure is based on someone wanting an annual retirement income of £20,800 and who started hoarding their cash at the age of 22.
Some of that savings will automatically be deducted from your paycheck if you’re signed up for an auto-enrollment pension scheme – and your company will pay for it, too.
Sarah Pennells, consumer finance expert at investment Royal London, said: “If you want to retire early, you need to know how you will pay.
“So think about your current age, how much you earn, where your pension is invested, and most importantly, what you want in retirement.”
The idea of leaving work early has become more popular with the rise of the FIRE movement, which stands for financial independence and early retirement.
FIRE converts often aim to retire at age 40, which is unrealistic for many.
But that doesn’t mean you can’t stop working before state pension age.
Sarah told The Sun: “The most tax-efficient way to retire is to get a pension.
“If it’s a workplace pension, your employer has to pay into it too.
“But you can only take money from that money when you’re 55.
“But retiring at 55 will still be at least ten years before the state pension comes into effect – and will give you more time to enjoy your non-work life.”
Here are her top tips for retiring early:
Change your mindset
First, you need to change your mindset, says Sarah.
Instead of thinking save for your retirement Like giving up money today, think it will help you live the life you want when you stop working.
That will help you stick to your budget and savings goals.
Detailed planning around what you want your retirement to be will help you visualize it, which can be an incentive to save more.
Perhaps you want to travel, take up a new hobby or simply spend more time with your family.
You need to treat your savings as a tool that allows you to do what you want.
Check your employer’s contributions
If you are registered for a pension at work, your employer should contribute.
Under the auto-enrollment rule, your company must contribute at least 3% of your salary to your superannuation.
Add 5% directly from your salary, bringing your total contribution to 8%.
Some companies will pay more than the minimum amount, so you should question whether you can get a larger donation.
Sarah says some employers will even match any extra you pay in pounds up to a certain amount, often even up to around 10% of your salary.
That can seriously increase the size of your pension fund.
Check your company’s pension policy – you should have been sent these documents when you applied.
If you’re not sure where to look for policies, you should check with your company’s human resources department, which should be able to point you in the right direction.
Pension contributions from your company are essentially free money so you should make the most of it.
Backup cash savings
Any extra cash you can save will help you reach your goal of early retirement.
Check your bank statement or online banking app to see where your cash is going and if you can cut back.
See what you’re saving right now, what it could bring you in retirement, and whether there’s a gap between that and what you need.
Use an online calculator, such as a government-supported computer MoneyHelper.org.uk website.
If you are 50 or older, you are entitled to a free pension guidance call with Pension Wise.
“A few pounds here and there will help with your retirement purchase,” says Sarah.
“Retirement can feel like a long road – until suddenly it comes to you.”
Where you save your excess flour can also make a difference.
Cash in the bank will earn no interest, but if you put it in a savings account, your money will grow over time.
You might also consider setting up a Lifetime Isa, which will give you an extra bonus up to £1,000 a year, although you can’t withdraw that amount until you’re 60.
Remember your state pension
Make sure you don’t miss out on your state pension, although you won’t get it until your late 60s.
Your state pension can form a valuable part of your retirement income.
For example, if you want £15,000 a year in retirement – then you should keep in mind that your personal pension savings only need to provide about half of that.
You can find out your state pension age on gov.uk website.
The full state pension payment is currently £179.60 per week but the amount you get is based on the number of years of National Insurance Contributions (NICs) you make.
Gaps in contributions, such as when you’re not working and caring for children, can be filled by claiming credits instead.
Thousands of people are missing these National Insurance Credits, which could be worth £5,335 after 20 years of retirement.
But you can fill these gaps to make sure you get your full rights – check it out gov.uk website for full eligibility details.
https://www.thesun.co.uk/money/17382797/pensions-expert-how-to-retire-early-at-55/ I’m a pensions expert and here’s how you can retire at 55