Metro (27/02/2018) – WHILE the age at which we can take our state pensions moves inexorably upward, the dream of retiring early refuses to die. A study from Prudential found that six in ten people retiring in 2017 did so before reaching their state pension age, with many willing to take a cut in income to escape the rat race.

What’s more, many of those that have taken the retirement plunge report being fitter and healthier than before, a third claim to be more adventurous than they were when at work, and nine out of ten say that retiring has met their expectations.

It’s an enticing prospect. But if you want to throw in the towel before your government money comes through, you are going to have to think your finances through very carefully.

Do some early retirement calculations

It can be difficult to know where to start when devising an early retirement plan, but average life expectancy should give a good guide to the task that faces you. The majority of us are living longer than ever, so if you plan to give up work at 50, you will likely have to support yourself for many years.

According to government figures, the average 65-year-old man today will live to 83-and-a-half, while women will live even longer, to almost 86. That may rise further by the time you hit 65 but, even if it stayed the same, you would have more than 30 years of life to fund without a monthly pay packet.

Figures from investment manager group Old Mutual Wealth suggest that the average annual retirement income is a little more than £20,000. However, you will need to consider inflation, which means that £20,000 will buy less and less every passing year. Even without inflation, though, you’d need around £700,000 to last the course.

Building a retirement fund

Such a figure might well feel way beyond your reach, but government tax breaks, shrewd investing and a holistic approach to your finances could help you to hit your target.

Making the most of your pension is one really important factor, especially if your employer makes contributions. Pensions come with valuable tax breaks, which are even more attractive if you pay tax at the higher rate, but you can’t usually get the money out until the age of 55 — and this may rise in the future.

So it is vital to have a plan to cover the period up until then if you are planning to stop work beforehand.

‘It’s important to consider what savings or investments people can use to bridge the gap until their pensions kick in,’ says Alan Chan, chartered financial planner at IFS Wealth & Pensions in London.

Full article link: https://www.metro.news/money-how-to-give-up-work-for-good/957092/