Updated: Jul 20, 2022
Fed up of the daily grind? Want to spend more time with your family? Dream of taking a long holiday? Maybe you just want to choose when you work. If you want to know how to retire at 55, here are 20 tips that will help you get there.
How to Retire at 55: 20 Tips to Help You Get There...
1. CONSIDER THE TAX IMPLICATIONS OF ALL YOUR FINANCIAL DECISIONS
Tax can be pretty overwhelming: even for the most seasoned business people. Yet it doesn’t have to be. Carefully thought out financial advice can make a significant and positive impact on your wealth. A professionally prepared tax plan could help you and your loved ones retain more of your money, now and in the future. If your tax arrangements are complex, think about retaining the services of a professional adviser.
2. INVEST RATHER THAN SAVE
With the current level of interest rates, cash savers aren't getting value for money. Investing your retirement fund in equities, bonds or property has historically provided higher returns although there will always be additional risks you’ll need to accept.
3. DON'T INCREASE YOUR STANDARD OF LIVING IN LINE WITH YOUR SALARY
Use your pay rises as an opportunity to increase the amount you’re saving every month. It’s tempting to let your monthly expenses track your income but to retire at 55 requires you may need to invest some of your extra income.
4. MEASURE THE GROWTH IN YOUR WEALTH REGULARLY
There’s an old adage: “You can’t manage what you don’t measure”. Make sure you’ve got a system in place to track how your wealth is growing over time. You need to know when you start drifting from your retirement plan and be prepared to take some corrective action.
5. TRACK DOWN AND GET CONTROL OF YOUR LOST PENSIONS
More than £3 billion of pensions funds are reported to be forgotten or lost. Those pensions are likely to be from old jobs and could be performing poorly. Left where they are, your funds could be worth less at retirement than they are today. Find your pensions and make sure they are under control.
6. SAVE A HIGH PROPORTION OF YOUR INCOME
People aiming to retire at 55 may need to generate a lot of free cash. If you can save 45% or more of your income starting in your 30s you might be on course to retire this early. Saving 15% of your income from the age of 30 will only get you there by 65. You might want to enlist the help of an independent financial adviser to develop a strategy that matches your attitude to risk and understanding of the markets.
7. STOP PANIC SELLING WHEN THE MARKET COLLAPSES
If you hear news reports that the market has just collapsed and react by selling your investments it's likely you will lose the game. This behaviour destroys the wealth of many, many private investors. Don’t react, do whatever you need to take your mind off the immediate situation. Play the long game, think strategically and try to avoid emotional responses. If you can.
8. MAKE A PLAN
Be clear on the outcome you’re looking to achieve. Research and develop a strategy for how to get there and make a plan for how you’re going to implement that strategy. Otherwise you’ll just be shooting in the dark and whether you actually get to retire at 55 will be more a game of chance.
9. MAX OUT YOUR COMPANY'S MATCHED PENSION CONTRIBUTIONS
Workplace pensions are great. If your company will match your contributions up to ten percent, pay in the full amount to get the biggest boost to your savings available. However, this level must be affordable and you have to understand that if you are 55 you cannot access your pension.
10. CONSIDER SEMI-RETIREMENT
Retiring at 55 isn’t necessarily about stopping work completely. It’s about having a choice about how to spend your time. If you’re willing to work part‐time, or full‐time for a few months of the year, you may be able to prop up your retirement income and can reduce the amount you need to save before retirement.
11. HELP GROWN UP CHILDREN BECOME FINANCIALLY INDEPENDENT
Grown up children living at home can be a costly business. Estimates are that each child still living at home can cost parents £72per week, that’s close to £3,750 a year. Given the high cost of housing relative to starting salaries it’s not surprising that a quarter of over‐50s have adult offspring living with them. Helping them manage their finances effectively may help them get started with their finances as soon as possible. Charging them rent may give them the incentive they need.
12. CONSOLIDATE YOUR PENSIONS INTO ONE POT
If you’ve got six different pension pots all with different providers, it’s very difficult to keep track of each fund’s performance. It’s also hard work to move your money to where it is going to get the best returns. Exercising your pension transfer options and bringing all your money into one place may give you greater control and help to boost your fund’s growth.
13. PARTNER WITH AN EXPERT
Our clients rely on us to help them achieve their retirement goals. We bring the knowledge and experience they need to navigate an increasingly complex range of options and ever‐changing legislation. Whoever you choose to work with, our clients say that it’s important to find a partner that will tell you what you need to hear, rather than what you want to be told.
14. DON'T RUSH TO PAY OFF YOUR MORTGAGE
There’s a commonly‐held misconception that all debt is bad. That’s not the case. With interest rates at record‐breaking lows, it may well serve your finances better to invest your free money in equities, rather than paying off your mortgage.
15. CONSIDER DOWNSIZING YOUR HOUSE
The cost of running your home will likely be the single largest expense you have. Downsizing your house could save you money, not only on mortgage interest, but also on utility bills, maintenance and insurance.
16. CONSIDER UPSIZING
Building wealth in your own home is tax efficient. Not only will growth in the capital built up in your main home be exempt from Capital Gains Tax, but it also benefits from the new Family Home Allowance, enabling a couple to pass on up to £1m to their children tax free by 2020.
17. USE UP YOUR ISA ALLOWANCE
Individuals can invest up to £20,000 a year into an Individual Savings Account (ISA), based on the 2018/2019 tax year. Money invested into ISAs can grow tax-free and can be withdrawn without incurring income tax in the future.2
18. CREATE A SUCCESSION PLAN FOR YOUR BUSINESS
Very few business owners have a detailed succession plan in place for their business. It’s not just a case of who will look after things whilst you’re on holiday. You need to know what will happen if you’re not there at all. Your business will be one of your most valuable assets and you need to have a plan for how this will generate an income for you once you’ve retired, whether that’s still taking an income as the owner or benefiting from the proceeds of sale.
19. USE YOUR CAPITAL GAINS TAX ALLOWANCE
UK taxpayers are currently allowed to realise £12,300 a year in capital gains (as of 2020-2021). There is no carry forward available with this allowance so, if you have any taxable investments, you should be mindful to realise the gains each year in order to avoid losing the allowance. Taking gains (however small) each year can greatly reduce future tax liabilities.
20. AVOID PREDATORS AND SCAMS
Avoid predators and scams. A fifth of people over 50 have been targeted by pension scammers, according to research from provider Retirement Advantage. If it seems too good to be true, it probably is. Be mindful of the common pension scams and always seek professional advice regarding your pensions.
The articles are for information only and should not be construed as advice or a recommendation. The investment strategies mentioned are examples only and may not be suitable for your particular: circumstances, tax position or objectives. Please seek independent financial advice before taking any action.
Names have been changed to protect identity.
No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.