Many people’s dream is to retire early, which is around 65 years of age. If this is your idea too because you want to stop working, enjoy life, family, and your passions, such as travelling, starting a new project or just have more free time, then it is important to plan everything in advance. You have to consider all the small details to retire early in a more trusting manner.
Stop working years sooner than you should retire is an ambitious financial goal, but it is possible if you are cautious, accurate, and you know how to manage your income, savings and investments.
Here are 5 steps you should follow to achieve an early retirement without any problems.
1. Calculate how is a good pension pot if you retire early
First thing to do, you have to know how is the average pension pot in the U.K., then you can calculate how much your pension will be if you retire early. For example, if you are planning to stop working at 55, you will probably need half or two-thirds of your annual earnings as retirement income. Anyway, you have to take into account that the calculation is based on individual situations and on the type of lifestyle you want to have when you retire.
The good news is that many people tend to overestimate how much they really need during retirement years.
Apply the “4% rule” is a good starting point to calculate how to manage your pension pot. This rule is based on a withdrawal of 4% of your savings for the first retirement’s year and foresee an amount upward for the next years due to the increase of cost-of-living. Even if the 4% rule is not perfect, it can be useful to identify how much you need without the risk of running out of money.
When determining your budget, you should first consider essential spending such as food and toiletries, utilities, clothing and transportation, then you have to include personal discretionary expenses for entertainment and recreational purchases. In the non-discretionary expenses, you need to calculate mortgage, loans and credit card balance.
2. Find a financial advisor
Plan an early retirement and avoid any future problems could be very challenging. So, if you are not an expert in the investment world, you may consider to look forward to a financial advisor. Thanks to their expertise, you can rely on a personalized investment strategy. Maybe you can find a financial product that suit for you and help you to reach your lifestyle expectations and economical goals and enjoy your retirement years.
3. Save money before your retirement
Discipline and control are both important to have an early and solid retirement plan. Thus, you have to save money when you are still working, especially when retirement is nearing. If you want to live on 50% of your income that means you have to reduce your spending, work hard and try to extinguish mortgages, loans and other expenses before retirement. This way you’ll be probably able to build a solid pension pot for when you stop working.
4. Plan your health care during retirement
Healthcare expenses can be very heavy on your budget, after food and housing. To live a happy early retirement, it is important to have a plan to afford, predict and manage health care. Health care it is not only about medical costs, then you should consider spending on dental, vision, hearing aids, drugs, prescriptions and long-term care costs too.
In the best scenario, especially if you have worked in the public sector, you may be able to keep your current health plan even after retirement, but more often than not, you have to pay for a health insurance for your retirement years.
5. Keep an income or start a part-time job
If you are worried about your financial future, and you are concerned about spending the savings you have accumulated over a lifetime, you should consider that early retirement does not mean you have to stop working.
You will have more time, so you can decide to start a part-time job to count on a small income. Maybe you can decide to manage a bed & breakfast in our house or to just rent a room. You can also consider to dedicate to something you are passionate about and transform your passion into your new part-time job.
