Advice on setting up for an early retirement

[Reluctantadult]

Has anyone got sage advice on how to set yourself up to retire before 68? More like 60 or 64?

According to 'which?' a couple can live comfortably on £28k. Does that sound about right? No advice I can see for a single.

I believe retiring early means taking a lump sum to tide over to state pension age.

Which? assumes that the mortgage is paid off. Ours runs until 64 at the mo, so should reducing the term by overpaying be a priority?

How old are you OP? It makes a big difference to know where you are starting from. Advice if you are 21 will be very different than if you are 61

There’s loads of useful stuff Herron living costs for singles, couples and pensioners. www.jrf.org.uk/report/minimum-income-standard-uk-2022

Here on, not Herron!

I'm 40 so got a way to go yet. Thanks!

Really you need a passive income stream or 2. Standard employer pensions (defined contribution) don't really cut it. If you are lucky enough to be on a defined benefit pension it might be different .

Ok OP, there are two main routes to an early retirement:

1. If you have a non-state pension at the moment, the rules are that you can draw on it from 10 years before state retirement age.
2. Use ISAs to ‘bridge the gap’ between early retirement and drawing your pension.

I would recommend the Financial Independence UK Facebook group

I am on a civil service pension. Currently work part time.
Dh is on a private pension which is nowhere near as good.

I suppose I was wondering if there were some general principles or things to do?

Thanks! That's useful!
And that link is really really interesting too.

Have you checked on the CS pension website to see what your pension projection currently stands at? Id do that first, then go from there.

Im retired, DH in minimum wage job, we paid off mortgage when I retired at 59 and manage to live well on around £3000 net a month - I do work PT now though, and will need to do so until I get my state pension at 66.

Meaningful money is a great you tube Channel/podcast/Facebook group for explaining everything from whether to overpay your mortgage to estimating your pension needs. If you want to retire at 64, and your mortgage ends when you’re 64, then in theory no need to overpay (though it saves you interest, especially as rates increase). However how much you need to live on, what your plans are and how much your current pension provision will give you are all things you can think about now, so that if there’s a ‘gap’ you can plan for that now.

You need to know what YOU want to live off when you retire. £28k with no mortgage/rent will mean you won’t starve, but won’t leave a lot for travel if that’s how you want to spend your retirement. Work out what that needs to be in today’s money.

then you need to work out your projected income at different retirement ages and whether there’s a gap with the lifestyle you want.

if there is a gap you will either have to retire later, or save more. There are various different ways of saving more and you’ll need to consider the tax implications of them. Or perhaps you have other assets - if you have a valuable house you can downsize and realise some equity to live off/invest.

Mr money mustache (Canadian early retiree living in Colorado) is fascinating reading. He doesn't blog much any more but his posts from ten years ago still hold up. Fwiw I am slightly older than you but planning to retire at 55. Could've been sooner if I didn't have kids and stopped buying horses

Im your age and plan to semi retire not fully retire as I think it'll be too difficult to do that since I want to travel and do lots of things.

I need to work to 55 to ensure I have my 35 qualifying NI yrs for full pension.
My mortgage ends at 53. I'm now planning to pay my mortgage off earlier, I think by time im 48 is what I can manage. This means in full time work from 48 - 55 providing no major expenditures I can save a decent amount.

I then plan to cut back my hours significantly after 55. Take a part time job that covers my basic bills as a minimum. Somewhere between £1k-£1.5k as that gives me a big buffer to cover some hobbies and holiday without eating into my savings too much.

I have a defined benefit pension so can fully retire at 60 with no detriment to my pension amount which is what I'll do.

So I think you need to work out what your planning to do e.g. travel etc and see if you'll have enough savings to keep you going or something that provides you with an income e.g. rental

The FIRE (Financial Independence Retire Early) movement uses a 25x annual expenses as the point that you can retire. So if your annual expenses are £20k, you need investments (in S&S ISA and Pension wrappers) of £500k.
I think that is based on a withdrawal rate of 4% but you might want to base things on a lower withdrawal rate which would then mean you need more money in the investments.

FIRE blogs like The Escape Artist have articles about what you may need to achieve financial independence. theescapeartist.me/2022/09/09/who-saves-wins/

You may never want to fully retire, but you may want to reduce the amount of work you do and make the work you do very enjoyable.

1. Mortgage, unless you have a higher interest savings look to increase monthly payments, even £10 a month makes a difference. When you get a pay rise use a gross to net calculator to work out net pay and calculate the difference. Use 50% of the increase to either increase monthly mortgage payments or put in savings. This will enable you to pay off your mortgage early. Once paid off put the monthly mortgage payment into savings.
2. Civil Service Pension, this is a DB pension which is great and currently increases by CPI. Use the CS pensions website to understand how your pension accrues and impacts on taking it early. Sign up for the Pension Power sessions and McCloud updates if you are impacted. If you take your pension early it is roughly a c5% reduction for each year you take it early. However, if you do some calculations you will see whilst you have a lower pension you have it for longer. For example a pension of £20k at state pension age 67 would be c£15k at 62, but 67 to 80 = 13 years x £20k = £260k compared to 62 to 80 = 18 years x £15k = £270k. It’s not as simple as this but I wanted to illustrate actuarial reduction is not the rip off some people think it is. Personally I would rather retire 5 years earlier.
3. Husbands pension - I am not familiar with DC pensions, but my advice applies in that he needs to understand his pension and tax implications.
4. You need to balance saving for retirement and living now, this is why I suggest only increasing mortgage payments by 50% of a pay increase, the other 50% should be to make life easier now.
5. A full state pension is c£9,500, that’s £19,000 as a couple. So make sure you both check your entitlement every couple of years. Work out how much you need each month to bridge the gap between early retirement and getting your state pension.
6. Remember when looking at income in retirement you do pay tax but you don’t pay NI or pension contributions so net income is higher. For example £24k a year as an employee = £1,587 net pay if pension is 6% but as a pensioner = £1,810 net pension.
7. Look at threads on MN and MSE forum relating to FIRE (Financial Independence Retire Early).
8. As you work PT look at how and when you can increase hours but also reduce hours later in your working life.

Agree with looking into FIRE blogs etc

I found this book useful, the author is Scottish so a UK angle: How to Reset Your Life www.amazon.co.uk/gp/product/B07GPJD8L6/ref=kinw_myk_ro_title

Also this Meaningful Money book really helped me reassess my finances, and sort things out: Meaningful Money Handbook www.amazon.co.uk/Meaningful-Money-Handbook-Everything-everything-ebook/dp/B07GDPW18K/ref=sr_1_1?crid=ONIF8OGVMLF0&keywords=meaningful+money&qid=1672928363&s=digital-text&sprefix=meaningful%2Cdigital-text%2C73&sr=1-1

It rather depends how much is in the DC pot rather than just "DB good, DC bad!"

My own person plan (mid 40s, aiming to retire at 62) is founded on:

• Maximising contributions to my employer DC scheme. My employer matches up to 10% of salary so I pay the full 10% and get 20% total going in as a result.
• Maximising Lifetime ISA contributions (which get a government bonus)
• Anticipating drawing down on an old employer DC pension pot plus other old ISAs to tide me over in the gap from 62 to State Pension Age

I can't find the first one, who is the author?
The second is by Pete Mathews?
I couldn't open the links but potentially that's my bad.

Loving this thread.

Sorry probably me doing rubbish links.

The first one is by David Saywer, RESET: How to Restart Your Life and Get F.U. Money

The second one is Pete Matthews, Meaningful Money handbook

DB = defined benefit?
DC = defined contributions?

The 35yr NI contributions mentioned up thread is also news to me! How do I find that out? Assume maternity leave will be breaks in mine that don't count.

I started paying extra off my mortgage whenever I had a spare few hundred.
Paid it off aged about 50. I was working 4 days a week.
'Retired' aged 55 on my employee pension, but went back to work 2 days a week. The pension, plus my part time work, are the same as I got on my 4 days a week wage.
As I took my pension early, I know I will have to keep working a day or two a week. But I decided it was worth the quality of life.
Sometimes I do an extra bit of work if I'm bored!

Despite having read that as Darling Brother and Darling Child, ooops.

I think claiming child benefits counts toward your pension contribution years.

You can go online and check your pension status on the government site.

You can get a state pension forecast here:

www.gov.uk/check-state-pension

You may have to register for a log in first though.

@Reluctantadult yes DC is defined contribution and DB is defined benefit.

This link www.gov.uk/check-state-pension takes you to the basic state forecast page. It will tell you current entitlement and how many years you need for a full state pension.

@snowlaser the Civil Service Alpha scheme has employee contributions starting at 4.6% up to 8.5% depending on salary.

Employer contributions are 26.6% up to 30.3% depending on salary. It is funded in a different way to DC schemes but the cost of replicating it with a DC scheme is very costly.

The benefit of this DB scheme is that you can work out roughly what your pension will be and that your pension once in payment is increased each year by CPI.

So if state pension for a couple is £19,000 and mine is currently showing £18,000 at 65, that's £37,000 without anything from dh... This seems lots??

@Reluctantadult The maximum basic state pension you can get is is c£9,500, if your Civil Service Pension forecast is £18 k at 65 that is a potential pension of c£27,500 for you. As I said it is a good pension scheme.

Your DH should aim to also get a state pension of c£9,500 plus his private pension.

One thing to be aware of is sadly when one of you dies their state pension stops. However, depending on the private pension scheme, you may get a widow/widowers pension. So you do need to think how you will cope with the drop in income at that stage.

Based on your initial question use this thread to start a spreadsheet to track pensions, savings and debts (mortgage). Also slowly start to develop your knowledge of your private and state pensions. Think of it as building blocks each one empowers you to make more informed decisions.