Retire at 55

This is a dream that many of us have, but how realistic is that dream?

Well, the realism depends on many factors and unfortunately one of those is how lucky you are (unless you are either much more affluent than the average Brit or you have a fully functional crystal ball). However, early retirement can be done.

The earlier you start retirement planning, the better your chances will be of retiring early. You can of course factor in your state pension, but remember you will not (under usual circumstances) be able to draw this pension at 55. If fact, the state pension age is increasing. The state pension age is even increasing at a rate greater than government projections only a few years ago. There is a chance that many people under 40 at this current time may not even get a pension until they are in their mid-70s!

This is when we must turn to other forms of retirement planning. These include workplace pensions and private pensions. Also see our other information on investments such as property – there is plenty of food for thought here at UK Pension Plan.

Due to the fact that it is unlikely that we will receive a state pension until almost 20 years after the age of 55, we need to ensure that we have sufficient income at 55 to retire. The income you need depends on the rate of cash burn of you and your dependants. If the children have left home and the mortgage is paid off, then this will be of huge benefit. We will assume that if you are considering retirement, both these things have either happened or are likely to happen in the near future. Your outgoings need to be covered, plus any additional luxuries that you either want or have become accustomed to. For this, many experts recommend that you need at least half of your wage prior to retirement. If you earn £40k, you will need at least £20k in retirement income (from pensions and investments). The average UK salary is just over 27k for comparison reasons. Please note that this include London weighting and some fat cat’s wages. The average wage in certain UK areas will be much less than this. Let us look at how to get an income of £20,000 from pensions alone and see if it is possible to retire at 55 years of age.

If you start at 20 years of age, with no deposit, just a monthly contribution:

If you want to draw 1660 per month (the equivalent of 20k pa); from the age of 20, you must have a total pension contribution of circa £1330 per month. Some assumptions have been made regarding inflation etc. Therefore, the average salary of 27k (ish) would only give a take home salary of a few hundred pounds more than this each month (not enough to pay the repayments on a new mortgage for sure). Note that you do not have to pay the complete pension contribution singlehandedly, but your employer can contribute too.

However, the average pension contribution in the UK is between 5-7% of each individual’s salary. This means that using these averages, the person depositing £1330 from their personal salary per month into a pension should have a complete salary of £23900 PER MONTH. Now you can see that this is possible, but most likely a dream. £23900 per month is £286,800 per year. Obviously this is not outside some people’s reach, but remember that we are basing this on the person wanting half of their salary when they have earned a more modest (yet good) 40k per year. The person earning 286k would need to save a lot more for a pension to pay out half of their salary if they were to retire at 55.

We can therefore see that pensions alone are perhaps not the pest way of retirement planning if you would like to retire at 55. Pensions form part of a secure retirement plan, but for those wanting more; they should look elsewhere as well. A tip is to ensure that you are free of debt and you have savings in more than one investment vehicle or pension product. Ensure the children are educated to the correct level to ensure that they have the opportunity to make their own future. Education does not just mean degrees, it means preparation for life. Many millionaires in the UK are not particularly well educated in the traditional university sense, but have an awareness and appreciation that is beyond most people. This is something that it is important to instil into the next generation. This is however, very opinionated and each individual must look at their strengths, weaknesses, desires and potential when making future plans. See our pension calculator for a quick way to asses a pension’s value if you aim to retire at 55.

Please note that these figures are for illustration reasons only and do not reflect true or accurate values. This is for information only and should not be relied upon. Always seek advice from a qualified and registered independent financial advisor (IFA) with an excellent track record. We recommend getting advice from more than one IFA too!

We hope that you have found this information useful and informative. Please remember that this is not making any recommendations and is merely ‘food for thought’. Read our other articles and search this website as much as you like. We are sure that the correct information is out there. Always seek professional advice before making any retirement or other financial decision. The future impact of a bad decision now can be huge, so always exercise caution.

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