The dream of retiring early is something which has crossed the minds of most people – buying that new car, moving house or booking a world cruise, it’s a nice dream to have.
As we approach retirement we start to look more closely at our savings and the reality hits home that we might not have enough to comfortably support us as first hoped. Below are three ways to help you retire early.
Reduce your working hours
One way to get a feel for retirement is to reduce your working hours or move to a part-time position if allowed by your current employer. This way you still take an income with the added benefit of paying less tax. If you have no mortgage then it can be an attractive proposition which many people have taken.
Tax treatment varies according to individual circumstances and is subject to change.
Start saving now
For the millennials and those who might be some way off retirement age, by saving more each month as well as contributing to a pension you’ll give yourself a financially better chance of being able to retire early.
With auto enrolment you can start making contributions to your pension with your employer doing the same. If you can manage without the additional income each month then it’s a great way to start building up your retirement savings.
Plan how to access your pension
This is very important when it comes to retiring early – there are many ways you can access your pension but you need to make sure that you have enough to support your lifestyle. Give consideration as to how your life will change once you stop working.
From age 55 you can now take 25% tax free cash from your pension fund, but only if you are in a defined contribution scheme. Another option is to purchase an annuity but this method is not as popular as it used to be since the introduction of pension freedoms. You may of course decide that you don’t need to touch your pension fund and you can leave your money invested in your pot until you need it.
For those with a defined benefit scheme, your scheme may allow you to take part of your pension as a tax-free lump sum, but make sure you know whether your statement shows the amount of income you’ll get before or after taking it.
The value of your pensions, investments and the income they produce can fall as well as rise. You may get back less than you invested.
Transferring out of a Final Salary scheme is unlikely to be in the best interests of most people.