Updated: Mar 3
Unless you’re lucky enough to have spent your career building up a decent final salary pension scheme – increasingly rare - a comfortable retirement won’t just fall into your lap.
You have to plan for it, especially if you plan to retire early.
This month, Reeves Independent’s pensions experts provide their top five tips to put yourself in a position where you can retire before you had hoped.
Do you want to retire early? Is it possible? Here are our top tips to achieve that goal.
1. Seek independent financial advice early
This is the case with any pensions planning. The investment process and surrounding tax rules are complicated, are changing all the time and any mistakes can be costly. Find a reputable, professional, independent financial adviser who is authorised and regulated by the Financial Conduct Authority. These are some of the most important financial decisions you will make in your life and you should seek the guidance of experts.
2. Settle Your Debts
Paying off debts is more important than saving, as the debt interest you pay will always be higher than any savings interest you earn. Always make at least the minimum repayment on each debt and then prioritise paying off the debt with the highest interest rate. If you can, consolidate your debts so you are paying a lower interest rate. Your mortgage is also a debt, so, if you can afford them, try to make over payments to free yourself from your mortgage sooner and pay less interest overall. But check whether your mortgage provider charges a penalty for early repayment.
3. Have a Well Structured Plan and Stick to It
You should make this plan in partnership with your financial adviser (see tip one). This will involve a review of your current situation and of your income and expenditure to decide how much you can realistically afford to save for your retirement. Take a look at any investments you have in the shape ISAa, cash deposits, shares and so on. Perhaps these would work harder for you and bring tax benefits if they were invested in a pension fund but remember the need for rainy day money (see tip five). Also with your financial adviser, you should review any existing pension arrangements you might have with a view to consolidating them. Then, once you have drawn up your plan with a budget for regular pension fund savings, stick to it, but don’t forget to review it regularly to take account of changing circumstances, markets and regulations.
4. Outline Your Retirement Income Needs
The goal of pension planning is to save enough so you have enough to live on. To do that you must calculate carefully and realistically how much money you will need to meet your costs each month, with a margin for comfort. Start by working out the basic minimum you’ll need to survive: energy, food bills, transport costs and so on. Then think about the things you would like to do and buy, such as holidays, social life, hobbies or that sports car you always promised yourself. Then estimate how long your retirement is likely to be, which will depend on the age of retirement and your health. Finally, factor in that your spending commitments will fall as you grow older, as children become self-sufficient, you take fewer holidays, go out less and give up driving. Calculating all this, with the help of your financial adviser, will help you arrive at the total size of pension pot you require and whether you can afford to retire early and – if so – at what age.
5. Do You Have Sufficient Savings for Emergencies?
Always expect the unexpected. This is especially important when planning for your retirement. First, when you’re framing your retirement plan and deciding how much you can afford to save, remember that there are always unexpected bills and unforeseen events. Maybe a sudden illness or accident might mean you’re unable to work for a while. Will you have the funds to cover this, or should you think about insurance? Then, later, when you are enjoying your retirement, you should still have a reserve fund for when you need a new central heating boiler or to meet some other domestic emergency.
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.
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.