London: MANY workers dream of retiring at the age of 55 but simply can’t afford the luxury. Here are eight top tips on how to retire early.
Retiring early takes dedication and commitment to save rather than spend when you’re young and still working.
Danny Cox, chartered financial planner at Hargreaves Lansdown, said: “Those hoping to retire early must save more from their shorter working lives.”
For example, someone who retires at 65 might work for 44 years but be retired for 20 years, but someone who retires at 55 might work for 34 years and then be retired for 30 years.
Mr Cox said: “The key here is planning, to look ahead to when and where you would like to retire and what lifestyle you plan to enjoy.
“From this you can estimate the income you need and start to look at how to build that income.”
Here are his top eight tips on how to retire at 55.
1. Claim your share of the £35 billion the taxman gives pension savers
Mr Cox asked: “Did you know that when you put money in a personal pension the taxman chips in too?”
If you put in £1,000, the taxman adds another £250. But if you pay the 40% or 45% tax rate, you get an even better deal.
2. Start a pension – the earlier the better
Mr Cox said: “It sounds obvious, but the obvious is often overlooked. Indeed almost four in ten British adults don’t have a pension, including 1.4 million who are within a decade of retiring.”
To find out roughly how much you should save each month divide your age when you start saving by two and contribute this as a percentage of your earnings.
3. If they offer you a pension at work, take it!
Mr Cox said: “Companies, especially the large ones, usually offer workplace pensions. In many cases, they can also pay money into your pension.”
UK companies have to offer a pension to their employees and you could miss out on ‘free money’ if you opt out.
4. Check where your pension is invested
“Do you ever check the value of your home – even if you have no intention of selling it? It’s perfectly natural; your home is one of your largest assets, just like your pension,” Mr Cox said.
“Yet, do you check the value of your pension as often? Ever? Do you know where it’s invested? Alarmingly, nearly half of Britons have no idea.”
Make sure you know where your pension is invested because not all investments are the same and the difference can impact your pension a lot.
5. Make small, regular increases – they could go a long way
Mr Cox asked: “How much more could you get if you increased your contributions by just 5% every year?”
Have a look at projections to find out how much more you could get by making small increases now.
6. Track down old pensions
Mr Cox said: “Few people stay with the same employer for life – the average is 11 jobs in a lifetime. And even fewer people keep track of all the pension schemes they have joined during their career.
“Some estimate the total of unclaimed pensions is in the scale of billions.”
If you joined more than one pension but don’t have the details, you can trace them for free with the Pension Tracing Service.
7. Approaching retirement? Make sure you know about the new options
Mr Cox said: “Choosing how to draw your pension is one of the most important financial decisions you will have to make. You may have to depend on it for 20, 30 or even 40 years.
“Before you choose how to take your pension, it might pay to find out about the new rules and opportunities.”
There is now more flexibility over how you draw your private pensions – you can take lump sums, income , or a combination. It is possible to take your pension fund as cash in one go.
8. Act whilst time is on your side
Mr Cox said: “What you do today could make all the difference between standing in that overcrowded train to work until your late years or relaxing in the sunshine on a two-month holiday!”
Over a third of working adults don’t know when they will retire and 3.5million have no plans to stop working.