What is early retirement?
Early retirement in the UK can mean different things for different people.
Perhaps you want to stop or reduce working and rely on your pensions and savings?
Maybe you are ready to pack it all in and disappear into the sunset!
Or It could be that you want “financial independence” to know you could do all of the above if and when you wanted to.
Let’s focus on financial independence, as financial independence will help you achieve the retirement outcomes you want.
What you’ll need for early retirement.
Financial independence means that all of your outgoings can be met by your income and savings for the rest of your life.
Here is a list of things that you will usually need to have to achieve financial independence:
- Your Mortgage is Paid off (or nearly paid)
- Paying off all other debts.
- An emergency fund.
- Enough income for your basic needs (Food, bills)
- Enough funds to enjoy your life!
This is all dependent on what lifestyle you would like to live; the more modest the lifestyle you choose, the fewer assets and funds you will require.
Black Lion Wealth’s 6 Step Guide on how to retire early:
Step 1 – Pay your mortgage off.
If you can afford to, it is good to make overpayments on your mortgage to pay it off sooner and pay less overall.
Usually, this is better than building savings, as you are paying off interest (provided you also have an emergency fund)
Just make sure your mortgage provider doesn’t charge excessive early repayment penalties.
Step 2 – Pay off all your other debts.
Paying off debts should prioritise building savings, as the interest on debts will far exceed any savings interest you might earn.
If you have more than one debt, always pay off the debt with the highest interest rate first.
Step 3 – Work out your basic income requirements at retirement.
What is the minimum you’ll need to spend every year to have an adequate lifestyle?
Just consider the necessities; for now, we will come onto the rest later on.
Remember to ignore expenses related to your work, such as travel costs to and from work, if they no longer apply.
If you have any dependents, will they be grown up by the time you want to retire?
You might still need to support them financially, but this will count as discretionary spending – so deduct dependent related costs for now.
Aim to come to a single monthly and/or annual figure for all of your “essential outgoings.”
Also, Remember that costs will rise steadily with inflation each year.
Additionally, consider that you may need to find money to pay for care in your final years.
Step 4 – Work out what your discretionary spending is likely to be in retirement.
This is probably the toughest figure to consider.
A few things that you can take into account to help you come to this figure:
Where do you want to live?
How many holidays will you take?
What hobbies/ interests will you pursue?
What vehicle do you want, a car or possibly even a caravan!
Once again, assume your costs will increase with inflation and also that your lifestyle may adjust in later life as you slow down.
Step 5 – The length of your retirement.
Firstly, consider what age you would like to retire and then determine your life expectancy. This will give you the likely term of your retirement.
The next step is to determine whether your assets can cover those levels for the expected length of your retirement.
Step 6 – Calculate what income you can accomplish for retirement.
Make a list of all your assets, so you can consider where your income will come from for retirement.
Examples of Assets:
Savings and Investments
Private or workplace pensions
Income from a final salary pension
Your home (are you able to downsize or release equity?)
Other property (to sell or let)
You can consider state pension income once you reach this age.
You can then work out if all of your assets will generate enough income to cover the length of your retirement.
What Income will your pension pots provide?
Firstly, it depends if you will purchase an annuity with your pension pot or go into a pension drawdown.
You can then look at cash flow modelling, which can help you predict (based on certain assumptions) a reasonable income you can take from your pension pot(s) to last you throughout retirement.
Will your money last if you retire early?
Retirement can last a long time – and early retirement will likely last even longer.
Retiring early puts a triple strain on your funds because not only have you had less time to build it up, but it also has to last longer.
In short, every year of early retirement will cost you significantly more than an ordinary year of retirement.
We can help you work out exactly how much income you’ll need at retirement and whether you can actually afford it.
The value of Investments is not guaranteed and can fall as well as rise and you may not retain the amount you originally invested.
If you drawdown too much Income or your investments underperform, you run the risk of running out of funds.
The value of pensions and the income they produce can fall as well as rise, you may get back less than you invested.
The Financial Conduct Authority do not regulate inheritance tax planning and trusts.
Both Black Lion Insurance & Black Lion Wealth are Trading Styles of PRG Protect Ltd
Why speak to us – Our client charter?
We love what we do, and more importantly, we are qualified to do it – we aim to provide a fully comprehensive service to all our clients.
- We are confident that we will deliver a high-quality service that will be amongst the best in the financial services industry
- We continually strive to improve our personal development
- We follow the principles of treating customers fairly set out by the Financial Conduct Authority
- We treat our clients as we would like to be treated.
Our 4-step approach to financial planning:
We Understand YOU
- By gathering information from you, we always find out about any plans you already have in place
- We explore your attitude to risk and return, your goals and objectives, and build a picture of what you want to achieve
- At this stage you find out what to expect from us
- We do not charge you a fee at this stage
We Plan for YOU
- We’ll go away and research various scenarios and how to make the most out of your existing arrangements
- We’ll then recommend how you can build on your existing plans, so you have a chance of achieving your goals
We Implement for YOU
- We do all the heavy lifting on your behalf – like what we do for all our other clients. This saves you time and effort.
We Refine YOUR plans
- Nothing stands still. We will sense check the progress of your plans regularly, we suggest this is done once a year
- We will update you on legislation, taxation or you will update us on changes to your circumstances
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We are a dedicated team of financial advisers, with years of experience in guiding our clients to a solution that meets their specific needs. We specialise in helping both employed and self employed individuals, as well as business owners on a variety of solutions, which range from life insurance, income protection insurance, keyman insurance and shareholder protection insurance.
The guidance and/or information contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK