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Retiring before age 65 requires careful planning and considerable savings
Thursday 17 May 2018 Author: Emily Perryman

If you read the personal finance pages of the media you’re probably under the impression that retiring early – if at all – is nigh on impossible these days.

While it’s true that retiring early is trickier than it was in the past, it shouldn’t be impossible.

It merely requires a lot of planning and careful saving in the early years of your career.


Official figures show the number of Brits who define themselves as retired before the age of 65 has hit an all-time low of 1.1m.

A lot of people genuinely want to keep working past traditional retirement age, but for many it’s a matter of necessity rather than choice.

Saving rates in the UK are at a near 50-year low and the final salary pensions that funded many retirements in the past are in terminal decline.

On top of this, average life expectancy has risen, which means money in retirement has to last a lot longer.

Back in the 1940s, people could expect to live around five to 10 years after retiring. These days, a retirement of 20 years or more isn’t uncommon.

‘With less saving, less generous workplace pensions and a longer life expectancy, the challenges of funding an early retirement have increased,’ says Alistair McQueen, head of savings and retirement at Aviva.



The biggest risk of retiring early is that your money will run out too quickly.

According to figures from Aviva, if a 35 year-old earning £25,000 pays 5% of their salary into a pension each month, and their employer matches this amount with an additional 5%, they could amass a pension fund worth approximately £67,000 at age 55.

This could be used to fund an income of £1,200 each year in retirement, and they’d have to wait at least another 10 years to get a state pension worth approximately £8,000 a year.

But if the same individual kept working until age 65, the extra 10 years of investment growth would result in a pension fund worth approximately £120,000.

This could be used to fund an income of £3,200 each year in retirement, plus they’d get immediate access to their state pension.

‘The financial rewards of working longer are clear. In short, you’ll have more money to fund a shorter retirement, so you can spread your savings more generously,’ says McQueen.



The stats make for grim reading, but it doesn’t mean an early retirement is out of the question.

‘There’s nothing stopping people retiring early today, although to do so you need to save a large amount in the early years of your career or accept a lower annual retirement income,’ says Tom Selby, senior analyst at AJ Bell.

If retiring early is your goal, it’s important to accept that the responsibility for reaching that goal lies solely with you.

‘When it comes to retirement these days people need to engage their options more than they had to in the past and they also need to prepare a bit more,’ explains Robert Cochran, pensions expert at Scottish Widows.

‘It’s not harder to retire, it’s just that there is more choice and people need to take more responsibility for their own retirement.’

How much you save has the biggest impact on how likely it is that you’ll be able to retire early.

The good news is that pensions are a lot more flexible than they were in the past. You have more choice over what you invest your money into, when you retire and how you access your funds.


The best thing you can do to prepare for retirement is to start saving early.

This is because your money will benefit from investment growth over a longer period of time.

Figures from Scottish Widows show that even a small delay in making payments can make a huge difference. If a 20 year-old starts paying into a pension, the value of their pot at retirement could be 64% higher than if they waited until age 30 and made the same monthly payments.

‘Whilst it’s true that you can save higher amounts later in life to get to the same fund value, the amounts you need to save to make up for lost time are eye-watering,’ says Cochran.

However, if you’re in your mid-40s and haven’t started planning yet, an early retirement isn’t necessarily impossible.

Paul Leandro, a partner at Barnett Waddingham, points out that pensions aren’t the only savings vehicle people can use. It’s worth checking how much money you’ve got in ISAs and other savings products.

‘The key message for people in their 20s is to stay in their workplace pension. For people in their 30s to 50s, it’s all about contributions,’ says Leandro.

It’s worth remembering that you can make large one-off pension contributions in addition to drip-feeding money in each month.

In total, you can make contributions (including tax relief) of up to £40,000 a year.

‘If you have a windfall of spare cash and want to get the biggest bang for your buck, a pension remains a very attractive vehicle,’ says AJ Bell’s Tom Selby.

Another option to consider is working part-time in retirement, as this could help to supplement any income you receive through pensions and from the state.

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