Is 55 The Age For Early Retirement And Will £250k Be Enough To Last?

There are a lot of different opinions on when's the best time to stop working and whether 55 is too young of an age for early retirement. Some people believe that you should retire as early as possible, giving you time to enjoy the finer things and live without the stress associated with work.

Others think that you should wait until you're older, boost your savings as much as possible and avoid any fees you could incur from withdrawing before retirement age.

In this blog post, we will explore the possibility of retiring at 55 in the UK and whether or not £250,000 is enough to cater for your lifestyle even decades later.

A comfortable retirement isn't always about having millions. But, it is about carefully considering how much you need to keep up your current lifestyle as well as cover ongoing costs. With this in mind, we will also look at ways to ensure you make the most of any savings whilst still working.

Questions To Ask

Early retirement is the dream for most of us. Working full-time is not sustainable forever and for many people, it isn't even something that is sustainable until the current and ever-increasing retirement age. Between declining health, social responsibilities and family commitments - it is always a struggle to figure out where we draw the line and realise we've done our bit.

But before you get too caught up in being a lady or man of leisure, you need to consider how you're going to fund your life after work.

1 . Realistically, how much do you need each year?

While this might be a bit of a kick in the teeth when you add it all up - it is an important thing to consider. If you are considering 55 as the age for early retirement you should really sit down and figure out the cost of maintaining your current lifestyle.

Take into account your current working wage, recurring outgoings, hobbies, holidays and education for any dependents.

Generally, at 55 you are still going to have outstanding mortgage payments and other lifestyle choices to upkeep. A downside to retiring younger is simply having the ability and need to do more! This does mean that outgoings are going to fluctuate year on year.

So carefully consider the average costs of everything you are going to be doing and paying for year on year and you will have a good base to figure out how much you are going to need to live comfortably.

If you are relying on this £250k alone and we work off of the assumption an average person needs £20k a year to live comfortably - it is only going to last you ten-ish years.

2 . Is there money coming from somewhere other than your pension pot?

If 55 is your ideal age for early retirement, someone whose sole income is £250k will be looking to use that money somewhat differently than an individual with money coming in from other sources too.

Essentially, if you have other means of boosting your savings even after you stop working, it is going to last you longer and offer more potential than a stand-alone pension pot.

This may come from recent property investments. Many choose to downsize once the children have flown the nest or even move to a different area completely that may offer more in the way of rural countryside for cheaper than you're used to.

Similarly, recent or foreseen inheritance can top up your savings or allow you to avoid using any pension savings on house purchases and mortgage repayments. However, if you're unsure how to or if you're able to boost your savings, get in touch with our pensions experts who could help figure something out for you.

3 . How do you want to live?

This is a bit of a broad question but it covers everything from your current lifestyle to how you want to live when you retire.

For some, early retirement age is 55 and for others, it might be 65. It all comes down to what you want out of life and whether or not your savings can cover that. It is best to link your goals for life after work to our answer to question 1. If £250k would only last you 10 years in your current lifestyle - it may stretch a bit further once you are mortgage and dependent-free.

However, even erasing those costs may not make a big enough difference to cover your entire retirement. More regular holidays abroad, meals out and eventually increased health insurance costs are going to add back up to fill those mortgage gaps or maybe even more.

Having plans to travel and goals for a lavish retirement might mean that £250k isn't going to cut it. Sit down with an expert and work out exactly what your dream lifestyle is going to look like. That way there won't be any unnecessary surprises or returns to work!

4 . How long do you need it to last?

You might think it is a bit morbid to think about at 55, but it's essentially the determining factor to deciding whether £250k is enough to retire early.

Everyone has different spending habits and everyone has different goals. You need to determine how far YOU need this money to stretch. On average, if you're leaving work at 55 you will need this money to last 3 decades or more. That is a long time based on our average yearly spend we saw earlier. Especially if you have nothing to top it up with or fall back on.

What Is The Best Age For Retirement?

Again, it's all relative and if you sit down to calculate the amount you spend each year - you'll be able to get a rough idea of how much you'll need for 20, 30 or more years of retirement.

The general rule of thumb is to take just 4% of your pot each year to live off of. That's just £10,000 of your £250k. So, if you don't think that will be enough to fund your holidays and everything in between - it might be worth rethinking or doing all you can to boost your savings.

Also, don't forget that you are not technically a pensioner at 55. The more mobile, active and able you are - the more money you are going to need to fund your life on average.

Of course, the problem is that we don’t know how long we are going to live and probably don’t want to think too hard about it! But it is important to take into account your retirement will more than likely be longer than the average 20 years you’ll read about for people withdrawing funds at the state pension age.

Protected Finances

Another aspect to take into account is that the protected pension age will be the age from which you currently have the right to take your benefits from an unregistered scheme. This will be specific to an individual as a member of a particular scheme.

So an individual could have a protected pension age in one scheme where they have a right to take pension benefits at an age below 57, but for schemes where no such right exists the new NMPA of 57 will not apply until 2028.

If you are looking to avoid a tax penalty - we suggest looking into the conditions of your provider or asking a professional like Informed Pensions to discuss further what it could mean for you to withdraw early.

Still Confused?

Don’t worry, planning for retirement can be complicated and daunting. Especially when you’re looking for the age for early retirement and figuring out how much you need to make it possible.

That’s what we’re here for. We can help you gain control and clarity, offering an all-encompassing pension review service. That way, we can come up with a plan that suits you and help to decide what’s feasible in the way of early withdrawal.

Speak to one of our experts today or book an initial consultation to get started.

Please note, the information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

A pension is a long-term investment. The fund value may fluctuate and can go down.

Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation.

Get in touch for help.

Get in touch with us today if you’d like to review your situation. As our name suggests, we have a wealth of knowledge in the field of pensions and can help you in making these all-important decisions before you take the plunge into retirement.