Retiring in your 40s or 50s is a dream of many. You have been working hard for say 20 or 30 years, you have paid off your mortgage, your children have left home (well they are at university) and you have a large pension pot. You now might have another 40 years or 60 years of your life ahead of you. Congratulations! You are part of the Financial Independence Retire Early (FIRE) movement. But can you really retire in your 40s and 50s?
Adviser Points of View catches up with several experts to ask whether early retirement is possible.
Toby Band, private wealth director at The Arlo Group says: “For retirement you need two main things; somewhere to live and a reliable income source, which could be through property income or investment income. However, because access to pension pots is gained at age 55, it is impossible to retire from just pension savings in your 40s. However, professional footballers and sportspeople can access pensions from 35, while some people might have a protected pension age of 50 that could support them.
“As such, to retire in your 40s requires a highly successful career. This is generally around 20 years of employment, and 50 years of unemployment and retirement. For illustrative purposes, if someone had £1,000,000 in cash at age 40 and a property with no mortgage and wanted to live off that cash by using £20,000 a year, they may feel it would last a lifetime. However, when they would be at age 70, that £20,000 a year would be equivalent to less than £10,000 due to inflation, and in 50 years at the age of 90, it would be equivalent to just £5,800 a year giving them £120 a week to pay for living costs.
“It’s certainly possible to retire in your 50s, as the introduction of flexi-access in 2015 means any defined contribution (DC) pension holder can take income as and when they please from their pot from the age of 55. However, many people overestimate their spending requirements in retirement and risk their standard of living in later life if they retire at the wrong time. If used appropriately, however, the tax-free pension commencement lump sum, which can be up to 25% of an individual’s pension savings, can be used to clear debts and hugely reduce the strain of outgoings.”
Helen Hopcroft, managing director and chartered financial planner (CFP) at Equanimity says: “In order to retire an individual must have saved enough money to enable them to maintain their desired lifestyle throughout life. If someone retires when they are 40, the likelihood is that they need to have enough capital to last for the next 50 years (at least).
“Most people simply cannot save enough of their earned income to do so. However, it is not impossible. It just depends on how much money they spend. The more money an individual spends, the more they need to save for retirement.”
Tony Clark, head or retirement marketing at St James’s Place says: “I think the bigger question is what will retirement looks like for most people now and in the future? The days of the cliff edge retirement where you worked until a pre-determined age and stopped are largely gone.
Clark adds: “But it can be a difficult mindset to shift. I think a different way of looking at retirement is needed. Maybe it is a case now of not what age do I want to retire at, but at what income.”