Everyone has a dream of retiring early, to get away from the daily work grind of 9-5, daydreams about writing a best selling novel, or taking an all around the world trip. These ideas are quite normal, and get people through the long day.
Then the likely story is, at 50 the general population will take a look at their finances and think to themselves, how will they be able to afford to retire.
However, with smart planning and saving, your retirement should not be a problem, especially when you are young enough to enjoy that all the round world trip.
Saving for your retirement is defiantly worth it, the opportunities that retirement can bring, are quite limitless. With many putting living abroad for six months of the year, is very high on the wishlist for retirement. A recent national survey, indicated that 71% put travel high on the agenda for retirement, while 23% planned to be living abroad for some of the year.
Hobbies taken up by people who are in retirement are each to there own, some people are wanting to take up a new sport, spending time with horses, or spending time playing golf. Others may branch out, and go back to university to finish a postgraduate and maybe a PHD, or DPhil.
But, as we know, all these things cost money. Many people fear they will have to work until they die, with retirement ages going up. Thus, retiring early is a bit of a wish, especially on a salary type pension.
However, it is not impossible to retire when you reach 55, and enjoy a pension around the £20,000 mark. To do this, you will need to save at least £700,000, this is also including the state pension.
Here are a few ideas to help you save . . . .
Take Retirement Slow
We would say, that nearly half of the UK, tend to ease themselves into retirement, by taking a part-time position either with their existing employer or with a new employer.
This idea could work as the employee will pay less tax, and will have more money to spend on themselves through retirement. Hopefully, by this time, the mortgage will be paid off, leaving the retiree spare money, and they will not be taking money out of the retirement savings. Another idea could be to carry on working fulltime but take agreed time off, of a month or so, without pay (sabbatical).
It is not surprising that, those that enjoy a happy retirement, with the new car every couple of years, paid into a pension and overpaid when they were young, all the way to retirement. Healthy pension contributions, have always emerged to secure a healthy retirement pot.
For someone to retire at 55 with a pension equating to £25,000 per annum, both you and your employer will have to make payments into a pension fund of around £1600, from a young age of say 25 years old.
Take Your Pension Pot Carefully
Obviously, the way you take your pension pot will determine how much retirement monthly income you will get. There are basically three types or phases of retirement. The first is go-go, which is when you are healthy and want to tick off your bucket list. The second type of retirement is slow-go, which is when you are reasonably healthy, but not as active. The lastly is no-go, which is when you are not as healthy and not as active. You will find that income needs will go down the older you get.
Making The Most From Tax Breaks
People tend to worry about how much income they will have when they retire, but do not think about consolidating their outgoing to a minimum. It is very possible to live with just £800 pm as long as your mortgage is paid off. If you can avoid paying the 20% tax slice, then you have boosted your retirement money by 20%.
It is important to remember that a quarter of your pension pot can be withdrawn tax-free, but after that, it is subjected to income tax.
Consolidation can include downsizing, by moving into a cheaper property, and pass the equity from the old house to an ISA. Another way of making your property work for you is by using an equity release company, where they will release the equity in the house, and you agree to sign the house to them when you pass away.