If you want to retire early, how do you fund it?

[pennypineapple]

There was an interesting thread earlier in the week from an OP who has access to a very good DB public sector pension from her employer but can't access it until state pension age.

It got me thinking, because I'm in a similar situation. Have paid into a DB pension since my early 20s (now mid 30s) so in a good position there, but I can't access it without big penalties until I'm 68.

So if I were to retire at, say, 60 or even late 50s (something I daydream about!) how would I bridge the gap? How do people do it? Is there something I should be doing now to prepare? Other than just saving, of course!

Pay off your mortgage so you can live on less income

Think about stepping down or going part time rather than stopping altogether

Save into a Stocks and shares ISA - pick more than one fund and drip feed money in monthly to reduce the risks. Plenty of online brokers to choose from, some with quite low fees.

With a 20+ year window to save in, you should end up with a decent amount.

We started ISAs about 20yrs a go, putting varying amounts in each year depending on affordability and ISA limits at time. My pot is about 340k, DH less in ISA but he has various company shares.

The other option is to speculate on which companies are up and coming and buy shares, but that is harder to predict. DH has some Amazon shares from a long time ago, now worth a fortune, and also had ARM holdings. They supply chips for mobiles, DH bought his shares before the mobile boom, so got a spectacular pay out when they were subject to takeover a while ago. But his big gains are pure luck and some of his other share holdings are in the red!

We mid fifties and hoping to retire by 60. I will have some small DB pensions at 60, other pensions kick in at 65 then state at 67. Our ISAs will enable us to plug the gap between 60 and 67.

And yes, I agree with the “pay off mortgage” comment (ours was paid off a long time ago) - although if it’s on a low rate, you may find that putting spare cash into an ISA is more worthwhile - the longer the ISA has to grow, the better.

Or put money into a SIPP rather than an ISA...same investments, tax relief for up to £40k pa on pension contributions so you’ll get an instant boost, access pension savings at 55-57 depending on how old you are now.

Downsize, pay off your mortgage and live off your savings.

That’s what I did.

I retired at 58. I have a large pension...dh will work till 67. I am mortgage free.

I'm 55, and have just semi-retired in Feb. Working very part time in a little shop.

Worked for the civil service for 20+ years starting in the 1980s. Wages were crap, benefits were great - am reaping them now.

I know you already have - but for others would suggest looking at any future benefits of a job alongside wages - a lot of people just look at the headline numbers and hang the future.

Would pay off mortgage as soon as you can, and to be honest would pay money to get an independent financial advisor to run some figures for you - what you can afford to save and where to save it - we did and it meant we paid off the mortgage 7 years early saving thousands of pounds in interest.

(we paid £1.5k and saved £24k on the mortgage and made some investment decisions 15 years ago that mean DH will also semi-retire at 55 in 5 years time)

Owning your home is the big one. Once you own "the roof over your head" the rest is easier.

Well, yes, you just need to save elsewhere. So a self-invested pension (can be drawn 10 years earlier), you’re young enough to start a Lifetime ISA too.
With the existing pension, you might be able to draw a lump sum several years before 68 so you could live of that money in the meantime.

Thank you everyone, this has given me a lot of food for thought.

We are currently overpaying the mortgage and hoping to clear that in our 50s. If life gets in the way and that doesn't work out downsizing could be an option. We're in outer London so would have lots of options for moving elsewhere and getting more for our money.

I think I need to be smarter about savings. I do have a bog standard ISA although it doesn't have a great interest rate. Just recently opened my first stocks and shares ISA too, it's all a bit new to me though.

If I know I want to save specifically for early retirement then maybe I should start a SIPP or a LISA instead. How do you know which one to go for though? Hopefully once my employer pension kicks in at 68 I would be ok so would only need something to tide me over for a few years until then.

I do need to look more closely at options for accessing my employer pension earlier e.g. lump sums, at the moment I don't think I fully know what the options are

I wouldn’t have thought a SIPP would be necessary if you have an employer pension you can make AVCs into.

There’s and age cut off for LISAs, but that may be a good option if you’re not a higher rate tax payer

It depends on the tax bracket. The top up you get with a LISA is equivalent to basic tax relief on pension contributions. So it’s be the same for basic rate tax payers.
If you’re a higher rate tax payer, you’ll get more relief on a SIPP so could be an idea.

However, if you start drawing your SIPP money, it could be taxed (same as income, depending on annual amounts). The money drawn from a LISA is never taxed. And do go for stocks and shares as saving ones don’t keep up with inflation.

Paying down/off the house doesn’t necessarily make sense either. For example, if your mortgage is 1.5-2% but the returns on your ISA are 5%, then putting money into an ISA makes more financial sense. Should circumstances change in the future (eg high interest rates), you can pay down/off your mortgage with the ISA money at that point. This strategy does require good self-discipline, though, and making sure you always save into your ISA and don’t pay it out on a whim.