One of the most common questions our team of investment consultants gets asked is how an investor can use their assets to retire early. It’s a common goal, with many choosing 55 as the ideal age to wind down and enjoy the finer things in life after work.
How You can Retire at 55: Summary Table
| 🏖️ What is the retirement age in the UK? | There is no retirement age in the UK, but the current State Pension age is 66 years old for both men and women |
| ❓ Can I retire at 55? | Yes, it is perfectly legal |
| 🫰 Can I take my pension at 55? | Yes, you can access your private pension at age 55 |
| 💰 Can I have access to State Pension at 55? | No, you can only access your State Pension when you reach the State pension age |
Retiring at 55 might sound like a pipe dream. This isn’t necessarily the case, however; with sound financial planning and a disciplined approach to saving and investing, it’s possible to build up a sizeable fund to take into early retirement.
In the video above, Moneyfarm investment consultant Lily May Sparrow discusses the amount you’ll need in retirement and how you can get there.
How much do I need to retire?
For a comfortable life post-work, you might actually need less money than you expect. To maintain the lifestyle you have while working, it’s generally estimated that you need between half and two-thirds of your final salary.
For a comfortable retirement, the figure sits at just over £20,000 a year. This covers essentials, as well as a few luxuries – eating out and a couple of holidays a year, for example. If you want to swap city breaks for long-haul flights and get a new car every five years, the figure rises to £33,600.
Now, £9,627 a year is covered by the government in the form of the state pension. Bear in mind, however, that though you can access many private and workplace pensions at 55, you’ll have to wait for the state pension age for this government help. This is currently set at 68.
The tax benefits of a pension
To help you on your way, there are generous governmental tax benefits for retirement savings, in the form of tax relief on pension contributions. For example, if you wanted to contribute £10,000 to your pension, you’d need to pay £8,000. With the basic rate tax relief at source of £2,000, your contribution would rise to £10,000.
For higher or additional rate taxpayers, you can claim further tax relief through HMRC via your tax return.
Once you reach the age of 55, you can also take 25% of your pension pot completely tax-free. This should be enough to get you started and cover your living expenses for a number of years. After this, you’ll need to pay income tax on your pension income. Most people naturally earn less in retirement, though, so you might end up paying less in tax than you’re used to.
Some tips for retiring at 55
Here are our top tips for saving enough to retire at 55 – Lily goes into more detail about each of these in the video above:
- Get started as early as possible.
- Set targets and invest regularly.
- Ease yourself into retirement bit by bit.
- Decide how you want to access your pension pot
- Make sure you’re with the right provider.
We all want a comfortable and fulfilling retirement. If you want to retire as early as 55, you’ll need to plan not just your journey to retirement but also your spending once you’re there.
Your pension will need to be well managed and given the opportunity to grow, so it pays to do your research and avoid settling for whatever workplace pension you get handed. Get started early, invest as much as you can, set clear goals and you too could retire at 55 with enough money saved to truly enjoy your best years.
FAQ
Is age 55 too early to retire?
No, age 55 is not too early to retire, as long as you have a solid retirement plan.
What are the disadvantages of early retirement?
Your pension has less time to grow, and you will start depleting your pension funds early. You can gain access to your private pension at age 55, but you have to reach the state pension age to gain access to your State pension. Also, you may reduce the ‘qualifying years’ for state pension, which may result in less State Pension.
Can I take out my pension before age 55?
Withdrawing Money from your pension plan depends on your pension scheme’s rule, but it’ll be after you turn 55. Some pension providers may offer to help you withdraw funds from your pension account before age 55. This could be considered an unauthorised withdrawal. You may face a penalty of up to 55% if it’s unauthorised.
