Early retirement is something many of us dream of but don’t think it’ll happen.
Here’s our top tips to increase your chances of making it work for you.
Back-to-back in red taillights on yet another commute, retirement seems like just one of those distant pipe dreams. Behind a car honks and you switch the radio to another station, dreaming how nice it would be to sleep in on a morning, finally do that round of golf you’ve been promising yourself, or just go out for a mid-morning stroll with the dog…
Sounds amazing, right?
It’s something we all dream of as we trail to work for another day’s slog.
But did you know it might not be as far-away as you think?
You can now access your pension from age 55, making early retirement a reality for many.
Here’s seven ways to maximise your chances of early retirement.
- Take the taxman’s money
Did you know, the Government gives £38 billion a year to personal pension pots? Many people don’t.
UK citizens under 75 get a basic rate tax relief of 20% when they add to their personal pension.
As an example, if you pay in £800 the government will add £200 on top. Your pension provider will automatically claim this and add it to your pot.
However, if you’re a higher rate (40%) taxpayer, it’s also possible to claim a further 20% through a tax return, whereas those who pay 45% tax can claim 25%.
If you’re a 40% or 45% tax payer and don’t claim your extra relief, you’re missing a large chunk of money to add to your pension pot.
But it’s possible to claim tax back up to four years following the end of the tax year by getting in touch with HMRC.
This, of course, does depend on your personal circumstances and all current tax rules could be changed.
- Get saving now
Recent figures report one in seven people reaching retirement don’t have any kind of pension savings.
So, if you haven’t got a private pension, now’s the time to get one, particularly if you want to boost your chances of retiring early.
But it can still be difficult to decide how much you need to save. Here’s a quick calculation to help:
- Take the age you start your pension and divide it by two
- Put this percentage of your salary (before tax) into your pot every year until retirement
- Don’t forget to add your employer’s contribution
An example of this is:
- You decide to save into a pension when you’re 30
- You should try to put in 15% of your salary each year
- But if you want to retire at 55 you’ll need to put in larger amounts
- Get your employer to help
The Government’s automatic enrolment of employees in workplace pensions means it’s likely you have some kind of private pension. When you pay in your employer does too, so it’s easy to save in this way.
You can also make extra payments and your employer might pay up-to 10% extra when you do, however each employer has their own rules on this.
It’s also possible to opt out, but if you do, you’re missing out on your employer’s top-ups, so it’s a good idea to stay in for maximum benefit to your retirement fund.
- Dig up lost pensions
Gone are the days when a job was for life.
On average people change jobs 11 times in their lifetime, which could result in 11 different pension policies to keep track of.
It’s been reported there’s £20 billion is sitting in lost pensions.
However, the good news is the government has a free pension tracing service, where you can track down your private pensions and add them to your pot.
So, make sure you haven’t got money sitting there you could use to boost your chances of early retirement.
- Get investment savvy
You probably know how much money’s in your bank account, but do you know how much is in your pension?
You’re not alone if you don’t, many people have no idea.
This is usually because most don’t know how to check the value, particularly when pension providers don’t have online access and annual statements are filled with baffling jargon.
Firstly, it’s important you know where your pension’s invested and what outcome you want it to provide.
It’s vital you have a range of investments to ensure you get the outcome you want.
This is done by first looking at what level of investment risk you’re comfortable with. Then investing in a range of products to suit this and the outcome you want for your money.
Don’t forget, your choice can affect which investment products you need, so it’s always wise to consider this first.
An independent financial adviser can help you make the right choice. Find out how to make investments work for you.
- Make small contributions for a big difference
It’s often assumed to make a difference to a pension pot, large contributions are the only way to see results.
But, by contributing an extra 3% each year (less than the cost of a good bottle of wine each month) you can make a big difference to your retirement fund.
It’s unlikely you’ll miss the extra few pounds and it could really boost your pot. An example of this is:
At 30 years old Peter starts adding an extra £4.50 each month to his pension in the first year and increases this by 3% each year. By the time he reaches 65, he’s paid in an extra £40,000 to his pot. If he got basic rate tax relief and his fund grew by 4% each year, that then gives him an extra £85,000 in his pot at age 65 (combining his extra payments with the growth and tax relief).
- Don’t waste time wondering when you can retire
40% of British adults believe they’ll never be able to retire, which is a frightening prospect.
You may believe retirement will consist of just scraping by, but often you’ve more options than you realise for making the most of your pension savings. By following these 7 steps you can boost your chances of retiring early and look forward to spending time doing what really matters.
Many people come to us with one simple question, ‘Do I have enough to retire?’
Our unique Plan Happy process will show when you’ll have enough.
You never know, it could be sooner than you think.
Could Joslin Rhodes help you retire early? On average, our clients retire five years before normal retirement age. Book your free consultation.
Joslin Rhodes are Independent Financial Advisers specialising in pension advice and retirement planning, authorised and regulated by the Financial Conduct Authority (FCA), we have the additional permissions to advise on defined benefit and final salary pension transfers.