If you’re looking forward to your retirement, you’re probably excited by the opportunity to finally kick back and enjoy the fruits of your labour. But what's the ideal retirement age, and how much do you need to turn your later life dreams into reality?

We delve deeper into these questions – and explore the considerations and costs of retiring early.

Average Retirement Age vs. Ideal Retirement Age

The UK’s average retirement age is around 65 for men and 64 for women, according to government figures from 2022. However, many people dream of retiring much earlier, and for good reason.

According to the Office of National Statistics (ONS), the UK’s healthy life expectancy age – the age at which you can generally expect to live without major health issues – is around 63. Making the most of those healthy years is often what motivates people to retire in their 50s or early 60s.

But there is a catch: retiring early can come with a hefty price tag – and you’ll need to plug a funding gap until your state pension kicks in. With the state pension age likely to rise from 66 to 68 in the coming decades, retiring at 60 could mean finding funding to cover an eight-year income gap.

So, if you dream of an early retirement, you’ll need to start planning as early as possible to achieve your goal.

Retiring early can come with a hefty price tag – and you’ll need to plug a funding gap until your state pension kicks in

Calculating your early retirement needs

When you sit down with your financial planner, one of the things they’ll want to establish is the kind of retirement you envisage. They can then start to determine how much money you’ll need to achieve it, as well as advise whether or not you need to make any adjustments to your current lifestyle.

Some people are happy with a relatively modest retirement income, which may afford them a UK holiday once a year, occasional meals out and more time with family and friends. Others look forward to exotic holidays, fine dining, and the pursuit of new hobbies or interests.

To calculate exactly how much you need, you need to consider the following:

– Retirement Duration: How many years will your retirement savings need to provide you with an income?

– Lifestyle Choice: Do you aspire to a moderate, comfortable, or luxurious retirement?

– Later Life Care: Have you factored in the cost of potential healthcare or long-term care needs?

To explore this further, see our article: How much do I need to retire?

Phasing Your Retirement

These days, retirement can take different forms. Many of us are living longer and healthier lives than our parents. At the same time, there’s increasing demand for experienced employees to remain in the workplace, and some people choose to do this, but on their own terms.

This is called a phased retirement. Rather than abruptly stopping work on a given date, phased retirement might involve reducing your hours, switching to something less stressful, or moving to another role that you’ve always wanted to try.

Crucially, phased retirement enables you to continue generating an income. You may find this allows you to retire earlier than you expected, or make your retirement savings last longer.

A 2022 study by Legal & General found that 34% of those aged 55+ who are still working (around 3.3 million people) have taken this phased approach. Retirement is no longer linked to a specific age or moment in time. In fact, almost half (48%) of employees aged 55+ expect to work less, with 14% planning to do so in the next year.

To find out more, see our article: Is a phased retirement right for you?

retire early

Boosting Your Pension Savings

Having helped you calculate how much you’ll need to retire early, your financial planner will help you draw up a plan to get you there. But regardless of what your personalised plan looks like, there are some steps everyone should consider to enhance their retirement prospects:

- Make sure you have enough National Insurance Credits (NICs):

You will need 35 years’ worth of qualifying NICs to receive a full state pension. If you have gaps in your record, and you’re aged between 45 and 72, it may be worth considering topping up your NICs with a voluntary national insurance contribution. You’ve got until 5 April 2025 to buy back any missing national insurance years from 2006 to 2016.

- Take advantage of pension tax benefits::

When you pay into your pension, you’ll get tax relief on your contributions. If you’re a 20% taxpayer you’ll effectively get a 20% top up on every pound. If you pay above the basic rate you can potentially claim more back through your tax return.

- Locate your existing pensions:

You may have several workplace or private pensions, invested in different ways and charging different fees. It’s important to ensure you have up to date information on all of them, and take a closer look at the performance and charges associated with each one. A financial adviser will be able to help you assess your current pensions and provide guidance on what to do with them – such as whether they should be consolidated, or not.

- Don’t miss out on company contributions:

Remember to opt into your company pension to benefit from their contributions. Your employer must contribute at least 3% of your earnings to your pension, in which case you will need to contribute 5% yourself. If your employer is more generous, they may contribute a larger percentage, meaning you can contribute less.

- Don’t skimp on your own contributions:

Check your pension projections and, if necessary, consider increasing contributions to achieve your goals. Although there is no fixed sum, the amount you need to contribute depends on what you expect from your retirement. Some advisers recommend saving up to ten times your average work-life salary by the time you retire. So, as your salary increases, you may want to increase your pension contributions in line with your wages to avoid any shortfall.

- Get professional advice:

Speaking to a qualified expert lets you plan for retirement with confidence. A financial planner will help you identify what you want from your retirement, understand what action you may need to take, identify tax risks or opportunities, and adjust to changes that may affect your pension savings or retirement income.

Like any investment, it’s important to remember that the value of pensions can go up as well as down, and you may not get back the full amount invested. What’s more, the law relating to tax is complex, subject to individual circumstances, and can change at any time. Always seek advice before making any decisions.

The value of Independent Financial Advice

Retirement planning can be tricky – especially when it comes to projecting how the future may play out – and early retirement requires careful consideration. You need to ensure you have enough savings to provide you with an income for what is hopefully many decades to come.

If you’d like to explore your options for early retirement, speak to one of our financial planning experts. They’ll help you create a plan that aligns perfectly with your goals and aspirations for the future.

Get in touch

To speak to us about your investment goals, or to arrange an appointment, call 0800 915 0000, or alternatively use our contact form here.