What do you need to do to retire early? – How to secure your future

The pandemic and the current world economic climate has catalysed a rise in people wanting to retire early, with as many as 1.3 million people in the UK workforce planning an early retirement.

However, without adequate preparation, these dreams to retire early may not be possible due to the lack of appropriate savings most people have – here Michael Reed provides some expert insights into how you can retire early, advising on what you should and shouldn’t do if you wish to withdraw from the world of work earlier than average

Cost of delay

 
Perhaps one of the biggest setbacks to early retirement is the difficulty in acquiring a sufficient amount of savings to sustain your lifestyle post-retirement, whether through your workplace pension or an individual savings account.
‘In many cases, I see individuals who have delayed saving for their retirement, often for as long as 10 years’, said Michael.
‘This delay can have a knock-on effect, setting back an individual’s plan for their retirement, especially if they are interested in retiring early, as they simply do not have the funds needed to support their lives going forwards.’
As much as 15% of people in the UK don’t have any savings at all, which can be attributed to the increasing cost of living, or individuals delaying their saving plans. As explained later in the article, due to interest exponentially increasing the amount you have over time, starting earlier can increase your final savings amount much more than one might think.
 

What can you do to increase your chances of early retirement?

 
Michael recommends that, if you can, you should aim to save anywhere between 20% – 50% of your income every month.
‘This is of course dependant on your monthly income and monthly outgoings, so you should consider your financial responsibilities before committing to a monthly savings contribution’, he explained.
‘However, typically, those who are more frugal with their income and dedicate a larger portion to their savings are, of course, more likely to achieve early retirement.’
There are other alternative methods to generating enough income to support your retirement, such as through passive investments.
‘Passive investments present a way for people to build on their wealth gradually, whereby you buy into a security and own it long-term.’
‘Different to active traders, passive investors do not chase after short-term price fluctuations or market timings and instead, embark upon a buy and hold strategy.’
 

Debts and mortgages

 
Another key contributing factor toward saving for retirement and retiring early, is whether or not you have any unpaid debts and mortgages, said Michael:
‘As part of your saving processes, you should work towards paying off any debts and/or mortgages either as much as you can, or completely.
‘This means that you won’t have to worry about any major outgoings eating away into your pension savings, allowing you to make your savings go further every month.’
 

Young people and saving

 
Perhaps one of the best things to do is to start your saving journey as early as possible.For example, if two people began contributing £100 a month towards their retirement, but one started at 25 and one started at 35, the individual who began saving at 25 will have almost twice the amount of savings by the age of 65, compare to the person who started at 35.
This might seem like a miscalculation at first, as one might think that someone saving £100 each month for 10 years longer would logically in the end have just £12,000 more than the person saving the exact same amount each month who started later, but this is not the case. Due to the compound interest earned on the savings exponentially increasing the amount, that head-start will leave the person who started at 25 with almost double the amount, highlighting the importance of starting as early as possible.
‘I’ll always encourage the younger generation to start saving as soon as it becomes a feasible option.’
‘While I agree it is easier said than done, taking those small steps towards your savings can be hugely beneficial to you in your future.’
 

Make sure you calculate your basic income needs for retirement

 
It’s important when planning for your early retirement that you dedicate some time to determine how much you’ll need to spend each year to support your lifestyle, says Michael:
‘Think about the bare necessities, before you consider luxuries such as holidays.
‘Calculate what your ‘survival budget’ is, taking into consideration basic bills such as food, gas, electricity, water, and vehicle costs and settling on a monthly or yearly budget, factoring in yearly rising costs due to inflation.’
‘Saving up for an early retirement can seem daunting, but with the right advice and plans in place, you can begin to plan your future and plan to retire when it suits you.
 
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