How to retire at 55

Packing in work at a young(ish) age would be great, but just how realistic is it?

The chances of most of us retiring in comfort appear to be pretty slim.

The State Pension age is on the rise, ahead of the previous schedule, while many of us simply aren’t putting enough money aside to be able to give up work before our mid 70s. Indeed, an increasing number of Brits are reaching middle age without anything set aside at all.

It doesn’t have to be like this.

How much you need

It is possible to retire early. It’s not easy, but things worth doing rarely are. If you want to retire by the age of 55, it’s time to do some sums.

Exactly how much cash needed to cover retirement varies depending on the person and their lifestyle. Sadly, there’s no simple answer. However, pension experts tend to tell you to aim for between half and two-thirds of your current salary.

The current national average salary stands at £25,800, so let’s see how much you’d need to save in order to enjoy a retirement income of around £12,900.

You have to start early

What the table above clearly shows is that it’s nigh on impossible to retire early if you leave your pension planning late – very few workers on the national average salary are going to be in any position to devote 50% (or more) of their salary towards their pension, as would be required for workers aged 35 and over.

The first thing that is abundantly clear is that if you want to retire early, it is absolutely crucial to start saving early, and with meaningful sums. 

Take advantage of your employer!

It’s worth noting that in my calculations above, I relied entirely on the personal contributions that you make towards your pension. However, your chances of retiring by the age of 55 are far higher if your employer offers a defined contribution pension scheme, where they will also pay a set percentage into your pension pot.

Assuming your employer pays the equivalent of 5% of your salary, let’s see how much easier it may be to enjoy a life free from work at an early age:

As you can see, while you still need to save a serious amount every month in order to put enough cash aside to retire at such an early age, it’s a lot easier if you can take advantage of cash from your employer as well. If you want to ditch work by 55, it’s crucial that you take advantage of whatever pension help your employer offers.

What’s more, even if your employer doesn’t currently offer a pension scheme, they will soon be forced to. Have a read of The future of your pension for a full run-down of the NEST scheme, and how it will bump up your pension pot.

It’s a sacrifice

Even with employer help, it’s still a pretty big ask to set so much cash aside each month towards your pension. In order to put aside such a sum every month, you’ll need to make some serious sacrifices.

A healthy aversion to getting into debt will help, while you’ll need to forget about keeping up with the Joneses – no Kindles or iPads for you. Your entire cost of living will need to be kept to a minimum. Personally, I’m too much of a sucker for a treat here and there, but if you have some serious fiscal discipline it should be possible to save the requisite amount.

Take control of your cash

Of course, in order to reach early retirement it’s not enough to put that money in your pension and hope that it performs well – in order to get the most out of your pension contributions, you really need to engage with your pension.

Not all pensions are the same, so before you even consider signing on the bottom line, be sure you know exactly what sort of performance you should expect from your cash. You also need to be fully aware of the charges involved – even small differences in the charges can make a huge difference to your final pension, as we explain in Boost your pension by 25%!

You should regularly look at how your fund is performing, and if it’s not up to scratch, don’t be afraid to move elsewhere! Indeed, if you fancy really taking control of your pension planning, why not consider a Self Invested Personal Pension (SIPP), which allows you to decide exactly where your cash is invested.

Is it worth it?

So after all that, is it worth trying to retire so early? Personally I’m not so sure.

Don’t get me wrong, I’d love to retire at an age where I can actually enjoy my new found freedom years. But I’d quite like to enjoy my younger years too. Of course, I know that I need to keep up my pension contributions at a decent level so that I have a healthy fund by the time I do retire, but that doesn’t mean I want to sacrifice my holidays (however modest) or whatever other treats and luxuries I get to enjoy every now and again.

And anyway, lots of us actually enjoy work (no matter how much we may deny it). My Granddad didn’t completely retire until he was well into his 80s, and I’ve no doubt I’ll be the same. Building up a decent pension pot is really important, but it doesn't have to be at the cost of enjoying your younger years!

A number of assumptions are made with the tables above, which have been calculated using the Hargreaves Lansdown pension calculator. A compound growth rate of 7% is used, while a management charge of 1% is deducted from the final figures. Inflation is assumed at 2.5% compound, while annual contributions are assumed to increase by 2.5% each year in line with inflation.

More: 10 ways to boost your pension | Earn 8% on your savings!