More of us expect to extend our working lives, but 26-year-old FRASER O’ROURKE is planning an early retirement
The appeal of being able to retire early for me is that I’ll still be young enough to enjoy myself and make memories. The later I retire, the more likely that I may be in ill health or unable to work on medical grounds. Plus, does anyone really want to work for longer than necessary? I’m currently some way off retirement age. In fact, the old ruling about being able to take early retirement at 55 will no longer apply from 2028. So here’s how I’m planning to retire early at 57.
I know that saying ‘I plan to retire early’ could be seen as vague, so I’m putting on my SMART planning hat (specific / measurable / achievable / realistic / timeframe).
I also need to factor in that we are living for longer. As great as it is that I plan to retire early, will I have enough of a pension pot to sustain me? Will I have enough saved in case of poor health later on? If not, it may mean that I have to save more and work a bit longer.
Firstly, I’ll pay into my pension – I know that may sound simple but recently it’s been estimated that just over 10% of people have opted out of a workplace pension or have stopped paying into a pension pot due to other financial commitments.[1]
It’s also going to be one of the most important financial relationships you’ll have, so rather than neglect it, you need to treat it with care.
This is where tax relief can help . Anyone under 75 is eligible for 20% basic tax relief on their pension contributions. If your salary goes up and you start paying more income tax, you could claim even more.
With your pension, there’s no income tax or capital gains tax. It also isn’t considered part of your estate for IHT purposes, so there is the potential to avoid the IHT 40% tax penalty.
Most people get tax relief on pension contributions worth up to 100% of their earnings, currently capped at £60,000 each tax year which is also known as the ‘annual allowance’.
Whilst the current annual allowance of £60,000 may be out of reach for most of us, that doesn’t mean we can’t drip feed our pension pots!
It’s also important to keep an eye on any paperwork relating to your pension – there’s no longer the security of ‘a job for life’ like our parents and grandparents enjoyed.
We’re statistically more likely to change career paths and move jobs. It’s estimated that by the time we reach 45, we will have changed jobs on average at least eleven times![2] and move more often.
You should also read through your annual statement. Granted it’s about as exciting as getting a bank statementm but see where it’s invested and how much you’re paying in fees.
A little bit of knowledge can make all the difference. Maybe you’re not happy with the investment strategy and want it to be a bit more eco-friendly. Or maybe you’re comfortable taking on a bit more risk. Maybe you’re not happy with the fees you’re being charged.
I know that some people out there would rather stick their head in a sand trap than sort their own finances, so if the thought of touching your pension pot makes you feel uneasy then you may wish to consider getting financial advice.
As outlined at the start, the age limit ruling increases to 57 in 2028. So who knows what will happen further on down the line. Life has a way of interrupting our plans and who knows what or where I’ll be. At the very least, I hope I’ll get enough time to improve my short game!
Fraser O’Rourke is a financial adviser at Reddington Wealth Management
To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Reddington Wealth Management (email@reddingtonfp.co.uk)
[1] Gov.uk; ‘Ten years of Automatic Enrolment in Workplace Pensions: statistics and analysis’, October 2022.
[2] Gretel – April 2022
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