Wherever you go, you’ll find a plethora of advocates talking up the advantages of retiring early. It’s clear that early retirement is an ambition that many people share, but is it really as good as it sounds.
Why retire early?
People have many different reasons for wanting to retire early, but the one I hear most often is the desire to quit their job. Sure, many of us hate our jobs, but why not consider a change in career direction?
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While I know that not everyone can afford to do so immediately, and changing careers may require retraining or picking up new skills, there could be many options available that you may not have already considered. It’s a good idea to access your situation carefully, looking at how you can adjust your work/life balance and discussing with your employer about potential options to making your workplace more enjoyable.
In the end, you don’t have to stay in a place you simply feel is not a good fit. I’m sure there are lots of skills that you will have acquired that are transferable into whatever you want to do next.
Phased retirement may be a better option for some. This is where you reduce your working hours gradually, without quitting your job altogether. Your employer may not be keen for you to do this, but you could always look for part-time work.
Do you have enough savings?
Early retirement means your savings and investments will have to last for more years, meaning you’ll either have to make do with less money each month, or you’ll have to save more (potentially, much more) in each of your working years.
Leaving the workforce at an earlier age means that you’ll have less years to contribute to your pension pot. This means you’ll need to save more in each year to build up the same level of savings that you would otherwise have been able to do with later retirement. But given that you’re also drawing down funds from your savings and investments at an earlier age, you’ll also need a bigger pension pot to maintain your desired level of income in each year of retirement.
What’s more, beware of unexpected expenses, and set aside some money for unforeseen financial costs. Many people also underestimate their life expectancy, potentially leaving their financial security at risk in later life.
Remember, you’ll probably won’t get the State Pension until the age of 66 or later, depending on when you were born. You’ll also need 35 qualifying years to get the full new State Pension, which you may not achieve with early retirement. And in any case, the maximum amount that you can get from the State Pension is just £164.35 a week, or £8,546 a year — a figure that won’t go very far with even a basic lifestyle.
So, unless you make the sacrifice of saving more in each year, you might get bored and miss working. And if you run out of money, you may find it more difficult to re-enter the workforce when you have a long employment gap.