If you’re aiming to retire earlier, the most important thing to do is make a plan. If you create something tangible to work with, you’ll have a tool to help you budget so that you’re in a strong position to e an early retirement.
- Estimate your retirement expense
Firstly, you’ll want to sit down and estimate the expenses you’re likely to have when you retire.
Note down the cost of housing, utility bills, food, clothing, transport and insurance. It’d be ideal to enter retirement without a mortgage or other debts, but if unavoidable, make a note of these costs too.
Once the essentials are written down, note down your discretionary expenses. These costs include entertainment, hobbies and holidays. If you anticipate providing children with financial support during these years, factor this in too.
- Have a savings and investment plan
Once you have an idea of how much you need to save, create a savings and investment plan for yourself.
Consider the savings and investments you already have. Could you boost your pension pot by transferring these over and benefitting from the tax relief?
It can be really helpful to consult a tax guide that gives you a clearer idea of how you can manage your finances in a more tax-efficient manner. This can provide inspiration on how to make the most of your savings and investments, making early retirement a more achievable goal. This is something you can discuss with a financial advisor, too.
- Maximise your retirement accounts
If you can afford to pay more than the minimum monthly amount into your workplace pension, it’s highly advisable that you do so.
A simple calculation is to take the age you start saving for your pension and then halve it. This number should be the percentage of your pre-tax salary that you save into your pension each year. Though the percentage you calculate might seem like a lot, this does include your employer’s contribution.
- Pay off your debts and mortgage
To retire early, you’ll need to ensure your outgoings are fully covered by your income. This means that it’s ideal to make sure your mortgage and any debts are paid off before you retire.
Before you start making any extra payments into your savings, trying to pay off these debts may be a good idea. This can stop the interest from simply racking up.
If you’re nearing retirement but you still have some debts to pay off, it is recommended to downsize to a smaller property. Doing this can free up the funds you need to make those debts yesterday’s problem.
- Stick to your plan
Once you’ve made your plan, do your best to stick to it. Once you’ve determined how much extra cash you should be injecting your pension pot with every month, you might even benefit from making savings and investment transfers automatic. This increases your chance of actually saving the amount you need!
Early retirement isn’t always the easiest goal. With careful planning and the help of a financial advisor though, you can turn it into an achievable aim.