Early retirement may be the ultimate dream, but the coronavirus pandemic made it the only option for some. Figures from the Office for National Statistics show that the over 50s had the highest redundancy rate between December 2020 and February 2021 ….
Retiring early can give you the changes of lifestyle you’ve been hoping for; but there are financial consequences to stopping work in your 50s.
What is the financial impact?
Currently there is no absolute age that you need to reach before giving up work. In fact anyone with a pension pot can access it from age 55, although this is set to rise to age 57 from 2028.
However retiring early can put pressure on your funds as your new income is likely to be less than your pre-retirement earnings. You maybe fortunate enough to have various sources of income to fund your retirement namely your personal pension, investments and/or savings. However the fist step is to determine how much money you need. Your state pension will not be paid until you reach at least the age of 67 and if if you stop working before then, you could be relying on your private pension savings for more than a decade. You also need to consider the impact of inflation. Prices have increased steadily over the past decade, even basic necessities have become more expensive. So if you’re looking at a retirement of 25 years or more, you could see the purchasing power of your pension income decrease rapidly.
How to assess your financial situation
1. How to plan
Think about the type of lifestyle you want to enjoy. You might plan to travel or simply spend more time with loved ones. When you’re reviewing your financial plans, it may be worth considering those first early years, for example, including more in the budget for holidays, dining and trips. Then consider modifying your spending as you ‘slow down’ in later years, but this could mean an increase in care costs.
2. How many years
There are no guarantees on how long any of us will live, but if you expect to live to around 85 and retire at 55, you will need to save enough to support you (and perhaps others) for 30 years; and don’t forget you may live a lot longer, plus you are likely to want to leave something for your loved ones.
3. How much is the state pension
Currently the maximum state pension is £179.60 per week £9,350 a year  but this is based on 35 years of National Insurance contributions to qualify for the full amount .
4. How much is in your private pension
There are pension options; you can use some or all to buy an annuity which pays a set income. Alternatively you can keep your pension savings and ‘drawdown’ only what you need. You must have a defined contribution pension to be able to do this. The first step is to track down your pension pots and request a pension forecast. The key is to understand the amount you will need for your retirement and your specific circumstances and expectations. If you are in any doubt about the financial impact of early retirement and how you can best plan for it, you should look to obtain professional financial advice.
 Living longer; older workers during the coronavirus pandemic. Office for National Statistics, May 2021.
 Having more for retirement. Gov.uk, August 2021.
 The new State Pension. Gov.uk, August 2021