Considering Early Retirement? Here’s What You Need To Know


Early retirement is a dream that many people harbour, but few manage to achieve. If you want to retire early, there are a few considerations to bear in mind before you clock off for good. Primarily gauging how much income you need in retirement and whether your funds will match your aspirations. Here’s Hilltop’s guide to everything you need to know before retiring early.

Decide How Much Income You’ll Need

If you’re considering early retirement, it’s essential to have a clear understanding of your income needs. This means knowing how much you’ll need to cover essential expenses and being aware of non-essential costs that could quickly eat into your retirement savings – especially in your younger retirement years. Without this level of planning, it’s all too easy for early retirees to find themselves in financial difficulty later down the line.

To avoid this scenario, it’s essential to take the time to sit down and work out a budget. This should include fixed costs, such as mortgage payments or insurance premiums, and variable costs, such as food, TV subscriptions and utility bills. Once all these essential costs have been accounted for, you can start thinking about how much you will need to set aside each month to cover their expenditure.

With a clear understanding of your income needs, you can start to plan how you might like to use your free time during retirement. Whether it’s travel, starting a new hobby or spending more time with family and friends, estimating how much you need to set aside each month for non-essential expenditure will make early retirement a truly enjoyable and stress-free experience.

Determining Your Retirement Income

To retire early, you need to have a plan in place for how you’ll continue to support yourself financially:

  • Consider your current living expenses and whether they will likely change in retirement.
  • Consider how long you want to retire and how much contingency you might need for medical costs.
  • Consider the impact inflation may have on your ability to maintain your current lifestyle.

Once you’ve contemplated all these factors, you can start to work out how much income you’ll need in retirement and where that money will come from. For some people, this may mean continuing to work part-time or finding other sources of income, such as investments or rental property. Whatever approach you take, it’s vital to ensure you have a solid plan in place to enjoy a comfortable retirement.

Determining your early retirement income will involve at least some of the following:

Defined Benefit Pension

If you have a defined benefit (DB) pension, your retirement income will be based on your final salary and total years of service. Most DB pensions pay out from age 60 or 65, so check with your employer about how early you can take retirement under your scheme and bear in mind that you could receive less if you retire early.   

Defined Contribution Pension

If you have a defined contribution (DC) pension, you can typically start taking a retirement income, lump sums, or both from age 55. However, given that your retirement income needs to last longer in early retirement, you may be better off, in the long run, taking a regular income from an annuity than taking upfront lump sums.


Property can support your early retirement through rental income from a property, sub-letting a spare room to a lodger, or downsizing. The other option is to release equity from your home. Equity release becomes an option from age 55 but comes with risks and should only be considered after consulting a regulated financial adviser.

Savings And Investments

Although pensions are one of the most tax-efficient methods of setting aside a considerable sum of money for early retirement, plenty of other avenues can bolster your plans. Your dream of retiring early will also require a certain amount of savings and investments, which will likely vary in performance over the years. 

Tracing Lost Pensions

It’s estimated that the average British worker will have 12 jobs throughout their working lives. That represents a lot of separate pensions, some of which may be ‘lost’ (figuratively rather than literally). In fact, recent research has found that there could be up to £26.6 billion out there in lost pensions The government’s free Pension Tracing Service can help you to track down any misplaced pensions.

Getting A State Pension

If you haven’t had a state pension forecast, getting one is a good idea. You can get an estimate either online via the government’s online state pension forecast tool, by post or over the phone. Of course, it’s worth bearing in mind that this income stream will only supplement your living costs later down the line if you retire early.  

Deal With Debts

Debt can be a burden at any stage of life, but it can be especially problematic if you’re considering early retirement. This is because, as an early retiree, you’re likely to have a lower income than those who work until traditional retirement age. You may also have fewer assets to draw on in an emergency. As a result, you could fall behind on debt payments or even default on loans entirely. 

This can damage your credit score and make it challenging to obtain new loans in the future. You may also find that your monthly debt payments consume a significant portion of your retirement income, leaving you with less money to cover essential and non-essential living expenses. For all these reasons, it’s vital to address any outstanding debts before taking early retirement. Various organisations can help, including the Debt Advice Foundation.

Pay Off Your Mortgage

If you’re thinking about retiring early, paying off your mortgage should be one of your top priorities. If you’re still making monthly payments on your mortgage, the interest can add up over time. So, if you’re considering early retirement, it might make sense to pay off your mortgage first or at least get as close as possible. That way, you can enjoy your retirement without worrying about repayments eating into your income and avoid having to sell or in the worst case lose your property if payments become unaffordable. Alternatively, if you’re on a low-rate fixed mortgage, leaving your pension funds invested rather than using your pension to pay off your mortgage could be a better alternative. 

Wherever possible, it can pay dividends to make overpayments on your mortgage. The sooner you can pay off your mortgage, the less you will pay in the long run. Just be mindful that some mortgage providers may charge early repayment fees, typically a percentage of the outstanding amount on the mortgage. Therefore, you should always double-check the terms of your mortgage to minimise any possible charges. 

Boost Retirement Income

According to the latest Census data, a 65-year-old woman can expect to live a further 22 years on average, while for men, it’s 19.7 years. So let’s say you plan to retire at age 55; your retirement budget potentially needs to cover you for 30 more years. There are various options available to boost your retirement income. These include paying more into your pension before retirement, delaying your retirement date, taking a part-time job (which has its social benefits), or setting up passive income streams like fixed-rate bonds or investment trusts.

Quickfire FAQs

Here are some quickfire answers to some of your most frequently asked questions about early retirement:

‘Can you collect unemployment if you take early retirement?’

Any income-related benefits might be impacted by taking early retirement. Contact Citizens Advice to find out how early retirement might affect your benefits, or use one of the government’s benefits calculators.

‘Do I need to inform HMRC if I retire early?’

Your employer and pension provider usually inform HMRC when you retire. But telling them yourself as well can prevent tax complications. You should undoubtedly contact HMRC if you plan to retire early from self-employment.

‘If I retire early, do I pay national insurance?’

You won’t pay National Insurance contributions (NICs) on private pension income but in some cases income tax might be payable. But you will pay NICs on income from part-time employment or self-employment over the NI thresholds until you reach state pension age.

Early Retirement Pension Advice

Taking retirement early can give you a considerable amount of extra freedom and time to do the things you love. But every early year of retirement means one less year of earning, spending and compound interest. That means you must be sure of your budgetary needs and corresponding income before retiring early. If you’d like early retirement planning advice, Hilltop’s experienced financial advisers can help to support your ambitions. We’ve even created this handy Personal Assets and Liabilities Guide to help you track your current assets and financial liabilities. 

If you’d like early retirement advice or to arrange a consultation, please contact us on 0161 413 7051. We’re open 9am to 5pm Monday to Thursday and 9am to 4pm on Fridays. Hilltop Financial Planning  is authorised and regulated by the financial conduct authority. Our advisers have over 100 years of combined experience, we’re ranked in the Top 100 UK Financial Advisers by FT Adviser and have vast knowledge of working with people like you, helping them to make the most of their finances.

Important information: Our website offers information about investing and saving, but not personal advice. If you’re not sure which services are right for you, please request advice from Hilltop’s independent financial advisers. Remember that investments can go up and down in value, so you could get back less than you put in.

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