It all depends like most things.
If you’re in the lucky position of being in a defined benefit pension such as the public sector ones which have final salary or career average, it can be more worth retiring early than people realise and less ‘costly’ in terms of the cost of the contributions versus what you get out. In the final salary pensions which pay out at 60, taking the pension at about 57 results in only a small reduction, but of course you get the payout for another 3 years in full.
It also depends if you need to take your pension immediately when you stop work. Lots of people interested in retiring early or in the FIRE approach have multiple saving schemes and investments running so they can stop early and live in those before their pension pays out. They value time over money.
And it all depends by what you mean by living frugally. With the average UK pension pot standing at about £67k which will be lucky to give an income of £3-4K per year if drawn down, most people aren’t looking at an affluent retirement even if they keep working...,what they put into a pension just won’t allow it. So consider the size if the pension pot (if on a defined contribution pension) and what it can deliver and also what is really needed for decent or frugal or affluent retirement, long with how much state pension you’ll get at 66/7.
Many sites suggest a couple need about £16-18k per year (after tax) for a very basic retirement. They suggest around £24- 30k (after tax) for a moderate retirement and over £42k (after tax) for a more affluent retirement. So the question is how much do you want and will your pension pot deliver it even if you work a lot longer..llfor most people the answer is actually no and there is going to be loads of retirement poverty.
If I recall correctly, a pot of around £200k is needed to deliver drawdown of around £10-12k.
For me, the answer to the starting question is complex. I want to retire early but I’m not prepared to live in poverty or even on an excessively low income. I calculate that as a couple we are aiming for £2.5-£3k per month after tax (people need to remember that pensions are taxed the same as any other income once the personal allowance is reached) and so we need to generate that income or more. In the early stages if early retirement it will need to be through other investment vehicles, but by the time we are 67 we will be doing well with our 2 pensions fully paying out and 2 full state pensions giving an income of around £4-£5k. It is the earlier years which are more tricky as there is no state pension until 66/7 and I’m keen not to take our final salary pensions too early as they incur actuarial reduction. That’s why some ‘bridging’ investment is needed to fund some years without any or full pension.
But I want to stop in mid to late 50s. My job isn’t suited to people in their 60s.
Oh and the other thing that makes a vast difference is paying off your mortgage early. If you can pay off before retiring your funding requirements are immediately lower. If you can pay off substantially before retiring, you can save the mortgage money which will allow even earlier retirement. It’s all about long term planning and not just thinking about it as you hit 50 or 55. The people who genuinely stop early have been looking at it since they were 40 or even younger and unless they are big big earners, have been reducing debt and building up savings and investment and pensions to make it happen.
Good luck everyone.