Retiring Early: Guide to taking early retirement

How to retire early in the UK

Taking an early retirement might be the best option for you, and if you are interested in learning more about retiring early, we have put together this helpful guide to point you in the right direction. It is vital to look at both the opportunities retiring early might provide for you, as well as what it could prevent. You also might be questioning what retirement is and what the difference is between retiring early and retiring at the usual age.

When you retire, it usually signifies the ending of your work life, but it can also mean being financially independent that you don’t need to work. The working age for retirement has changed over the years, but traditionally it has been from the age of 60 to 65 years which is reflected by the state pension age. An early retirement would then mean, to stop working before this government appointed age.

What happens if you take early retirement?

This question would have a different answer for every individual, but according to (Money Helper), if you take early retirement, the most important decision would be deciding what to do with your pension fund. If you have a defined contribution pension, you’ll be able to take as much money as you want out of it. Doing this, one-quarter of what you take out will be tax-free and the rest will be taxable.

Downsides:

• Smaller pension – You’re likely to receive a smaller pension than if you worked until normal retirement age. This is unless your employer is offering a substantially enhanced package.
• No State Pension right away – The earliest you can usually start taking a workplace pension is 55. But you won’t get a State Pension until you’re your state pension age…

What age can you take early retirement?

This question can be answered in terms of our line of argument that; retirement equals being financially independent. This doesn’t necessarily mean being rich, but that your outgoings over the rest of your life don’t exceed your collective income and savings. Is it possible to retire when you are in your 40s? In theory, yes. But the way to get there would mean making sacrifices when you are young.

By making sacrifices, this would be in terms of saving and investing money and making good financial decisions based on your sense/ knowledge of investment management. It would be a plus to put into place a retirement plan, so you can check that you are on target to meet your financial goal. This retirement plan should be regularly reviewed in case circumstances have changed. The answer to the above question is then, up to you, in how you manage your savings and how willing you are to make sacrifices.

Some statistics taken from (The Times, Money Mentor)

If you want to retire at 55, you need to save £6,000 a year from the age of 21.

• If you have an annual salary of £30,000, you would need 20% of your pay cheque
• With an annual salary of £70,000, you would need 9%

Early retirement benefits?

Early retirement would mean having more time to do the things that you actually want to spend time doing. The balancing act of working and other life commitments can get overwhelming, and getting time to enjoy yourself could see a potential increase in health benefits. Early retirement is the perfect time to explore new avenues and opportunities, such as booking that long-awaited holiday with your family or picking up a new skill you may not knew you had.

For individuals with health issues, retiring early might be the only option as it would mean you have less worry about the stresses of working. And if you suffer from ill health or a specific medical condition, you might have the option to retire before the official State Pension age, whilst claiming your full pension. Look at your options and decide from there, as you will need to ask your pension provider if your condition makes you eligible.

Do you have to pay NI if you retire early?

When you reach a ‘State Pension Age’, you stop paying National Insurance contributions. If you are below this age, you must pay National Insurance contributions on your income from employment or self-employment, provided that you earn above the minimum amount on which National Insurance contributions are charged.

Do I need to inform HMRC if I retire early?

This is a great question to raise when you are thinking of retiring early. Usually, your employer and any pension provider will tell HM Revenue & Customs (HMRC) when you retire. To prevent a delay that might result in an overpayment or underpayment of tax, you should also make sure to tell them yourself if you haven’t heard anything. If you are self-employed and about to retire, you must always contact HMRC.

They need to know about your income when you retire or reach a State Pension age so they can make sure you:

• Receive the right tax-free allowances
• Pay the right amount of tax
• Stop paying NI contributions

If you are a woman, you will also need to tell HMRC what your income is when you are 65. These rules might change as we grow older, but it’s good to keep updated with the government guidelines online.

Living at Platinum Skies

Experience what life could be like for you at one of our retirement communities exclusively for over 55’s and book a tour or for more information, call the Platinum Skies team on 01202 040996.