Many people’s desire is to achieve an early and happy retirement. Today, retirement means having the possibility to better enjoy life, maybe in the company of your partner, family and friends, having time to devote yourself to hobbies, such as gardening, or travelling.
Furthermore, except for certain categories of workers, the default retirement age of 65 years no longer exists, so you can decide to work with more flexibility even if you are retired and continue to have an income.
Retiring early from work is considered a priority for many people and for this reason a movement is born too: it is called FIRE, an acronym that stands for “financial independence, retire early”.
To achieve a happy and early retirement, however, it is necessary to plan everything in advance, and you should provide to start saving while you are still working in order to have the right financial independence to deal with your future. Indeed, if a solid strategy is adopted, then early retirement does not become a pipe dream.
Here are some useful tips you may apply to your retirement strategy.
If you want to retire early, you need to make some adjustments to your life. For example, you need to cut your expenses, trying to focus on the necessary ones, while reducing your living budget to save money.
Moreover, having some extras on which to rely on might be a solution to try to make up your wages. For instance, you can consider to work part-time, selling your DIY creations, getting paid for your professional advice, or earning an income from renting a house.
However, for those who have set a pension fund and are wondering “can I take money out of my pension?” because they have to face some urgent and unforeseen expenses, they should know that it’s possible only in certain cases. As a matter of fact, if you have a private or workplace, you can cash in pension before you turn 55, but you’ll probably have to pay a penalty fee.
Nonetheless, taking inspiration from FIRE devotees that adopt various strategies to cut expenses, wiping out some debts, such as mortgages and loans, may be the first thing to do in order to avoid to withdraw a part of the pension ahead of time.
Furthermore, all small expenditures have to be reduced: that means you should save money on transportation, utilities, food and housing costs and find some cheaper alternatives. Maybe you should use your bike instead of the car, or try to respect a weekly budget for your groceries.
Calculate Your Annual Retirement Needs
Your expenses should be the best reference point for determining how much you should save for your retirement. Even if costs could vary depending on time and life events, the comparison between what are you spending today and what will you spend in the years leading up to retirement could be quite realistic.
Your annual needs could vary on your desired lifestyle during retirement years, but fortunately, there are plenty of ways to cut expenses and still maintaining an active lifestyle.
If you are looking for a general rule that may help you calculate how much money you’ll need in retirement, you can multiply by 25 the amount you currently spend annually. To live and happy and early retirement, you can withdraw 4% of that sum each year.
It’s crucial to understand that these general rules are not precise, but they are both commonly regarded as a reasonable approach.
Build Your Pension Pot As Soon As You Can
Starting early to build your pension pot may be a good start to have a happy retirement then.
According to the Which?, the average annual household expenditure in the UK is around £26,000, which suggests that this is more or less the money most people will require to live comfortably during retirement years.
Based on these numbers, a couple in their 20s would need to set aside £259 per month, which would increase to £337 by the time they are in their 30s, £487 by the time they are in their 40s, and £789 by the time they are in their 50s. Obviously, if a more luxurious retirement is desired, the amount of money set aside monthly should be about twice as much.
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