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Waking up early and starting on your commute may get your mind wandering about what age can I realistically retire and how much money would I need.

Whilst early retirement is possible, ensuring you have enough money to support yourself, and any financial dependents may make retiring early less realistic. The prospect of being able to retire early may be the only reason you continue with the daily grind. Still, early retirement doesn't need to be a luxury kept for a fortunate wealthy few.

By prioritising your earnings, savings and investments, you could too retire earlier than you think – but be aware, you may need to make some sacrifices along the way. Working with experienced advisors like our team at Hilltop Finance is an excellent start to make sure your pensions and investments are performing.

Retiring at 55, what size pension pot would you need?

On a positive note, many people over-estimate the amount of money they will need to retire. Once you’ve totted up your current outgoings, you may see that a significant proportion of your spending habits are on non-essential items. Hopefully, by the time you retire, you will have paid off the biggest outgoing; your mortgage.

It’s estimated that to maintain your current lifestyle, you’ll need around 60 – 70% of your present monthly income. The reduced outgoings are due to not having a mortgage to pay, reduced commuting spend, and hopefully, your children can now support themselves financially.

How much do I need to retire at 55 in the UK?

Research by Which! shows a person looking for a comfortable retirement, will need around £25,000 a year (around £2,110 a month)^. This figure could cover the essentials, as well as the odd luxury like a European holiday or city break.

If you want to upscale your travels to long-haul and get a new car every five years, you’ll need £40,000 a year (around £3,330 a month). Based on the figures above and the average life expectancy in the UK currently at 82 years old*, you would need a pension fund just over £675,000 (27 years in retirement at £25,000 a year). This figure may seem unobtainable currently, but this doesn’t include any state pension income.

State pension.

To help you get by in retirement, the government may provide you with state pension income. To get a state pension, you will need to have contributed to national insurance for between 10-35 years.

State pension age is currently 66 for most people and is expected to be 68 by 2044. Currently, the maximum state pension pays around £9,110.40 per year, as long as you qualify for a full state pension so you can factor this into your long-term plans.

You’ll only receive a full state pension if you’ve paid 35 or more years’ worth of National Insurance contributions. The good news is that the state pension is currently aligned to keep pace with inflation (unless a future government decides to change this).
If you’re not sure how many qualifying years you have built up, you can get a state pension forecast from Gov.uk.

Is your pension pot on course for early retirement?

Many people don’t know the value of their pension pot nor how much this fund could be worth when they come to retire. This prediction is called a Pension Forecast.

By understanding how much pension you have now, and how much this will deliver when you retire, means you can make plans on how to tackle to fund shortfall you may see. The financial advisers at Hilltop Finance can provide a pension forecast and put a plan together to help you to achieve your retirement fund target.

Full retirement at 55 isn’t an option, but can I go part-time instead?

Legally there is no such thing as ‘retirement age’. No employer can force you to retire unless it can be proven you are no longer capable of doing the work. You can work as much as you like and take your funds out of your pension to supplement your income over the age of 55.
Please bear in mind, that taking money from your pension earlier means that you won’t have that money in later life. You may need to rely on your pension funds as you get older as you may not be physically able to work.

If you continue to work, also keep in mind that you’ll still be paying income tax. Pensioners are subject to the same income tax rules as everyone else, so if your income is above the personal allowance, you will pay tax on it.

Sort out your finances today.

A study by the ILC has shown that by taking professional financial advice, people could increase their pension wealth by £31,000 over a ten-year period**. The earlier you engage with a financial adviser, like us at Hilltop Finance, the more money you could enjoy in retirement and potentially retire earlier.

Our free, without obligation pension review, will firstly look at your current situation and give you an overview of where your pension funds are at. Following the initial check and if appropriate, our team will work with you to ensure your pension is performing as it should. The team will furthermore make recommendations and put plans together to aim to cover any pension fund shortfalls before your desired retirement date.

For more information about our pension review, click here or call us on 0161 413 7051.

Hilltop Finance is authorised and regulated by the Financial Conduct Authority, No 787803.

Sources
*macrotrends.net, Nov ’20
**ilcuk.org.uk, Value of Financial Advice, Oct ’20
^which.co.uk, Nov ’20