Can you retire earlier than you think?

Imagine waking up tomorrow and realising that you could retire earlier than you ever thought possible. For many, the idea of early retirement seems like a distant dream, something reserved for the lucky few. However, with careful planning and a clear understanding of your financial situation, you might be surprised to find that early retirement is within your reach.

One of the most rewarding aspects of financial planning is helping clients discover that they can retire earlier than they expected. It's a moment of joy and relief when someone realises that they don't have to wait until the traditional retirement age to enjoy their golden years. But how is this possible? Let's explore this idea with an example.

Meet John: Planning for retirement at 67

John is 60 years old and has been saving for retirement his whole working life. He’s excited his retirement is on the horizon and he’s starting to plan what he wants to do. More family time, holidays and golf days are all high on the agenda.

He plans to retire at 67 when he becomes eligible for the State Pension. John has a £340,000 pension fund and plans to withdraw £20,000 per year from it to supplement his state pension. He believes that this will provide him with a comfortable retirement.

However, John knows there are a lot of options in retirement and doesn’t want to make a mistake with the pension he’s worked so hard to build. So, he decides to consult with a financial adviser to explore his options.

The financial review

During the review, the adviser uses sophisticated modelling tools to analyse John's financial situation. They consider various factors, including his current savings, expected returns on investments, and his desired retirement lifestyle. The adviser also takes into account the longevity of John's pension funds and how long they will last if he starts withdrawing £20,000 per year.

The surprising result

To John's surprise, the adviser reveals he can retire at 63 instead of 67. This includes taking his 25% tax-free lump sum at 63, which is around £120,000 (based on John continuing to contribute to his pension and getting fund growth). He also takes £20,000 each year and this could last well into his 90s*.

The adviser explains that John can maintain his current standard of living when he first retires by combining his tax-free cash and withdrawals – with enough left over for the fun stuff he has planned.

At 67 he'll start to receive his State Pension and John feels comfortable that combining this with his own pension withdrawals will be enough for him to enjoy his retirement. His adviser has also forecasted his own pension could last until he's 96. This is based on investing in a low to medium risk fund which the adviser calculated is suitable for John's "attitude to risk".

It's important to remember the figures shown are just an example and aren't guaranteed. We can’t predict the future so they're not a guide to future performance. The example also doesn't include any adviser fees, which could reduce the value of your pension. And you might need to pay tax depending on your circumstances and the options you choose. Tax rules can also change in the future.

Regularly reviewing John’s retirement plans

The adviser makes John aware that because his pension is invested it can go up and down in value and there’s a risk it may even drop below the original amount John invested. John also knows that retirement can last a long time and his own circumstances can change a lot in that time.

For those reasons John would like peace of mind that his adviser continues to review his pension to make sure he stays on track. So they both agree John would benefit from paying for ongoing advice, which includes a yearly review of John’s pension and his current circumstances and future plans.

At each review the adviser will:

• Look at John's withdrawal levels and advise if he should make any changes. There are a number of reasons they may want to do this, for example:
  
  
  • To help preserve his pension
    
    
  • Take more if it’s performing well 
    
    
  • Reduce withdrawals as John becomes less active
    
    
  • Increase withdrawals in line with inflation
    
    
  • If John wants to use money to help his family (eg to help someone get on the property ladder or pay university fees)
     
• Review John’s investments. His attitude to risk may change as he gets older and so the adviser will adjust the investment to suit John.

The emotional impact

The realisation that he can retire earlier than planned has a profound emotional impact on John. He feels a sense of freedom and excitement about the possibilities that lie ahead. Instead of waiting until 67, John can now enjoy his retirement years sooner, spending more time with family, pursuing hobbies, and exploring new interests.

The fact he takes ongoing advice also gives him an enormous sense of comfort. John is confident in knowing an expert will be doing all he can to make sure John’s pension lasts as long as he needs it to.

Conclusion

Although this sounds like a real scenario and it is similar to discussions we have with our clients, it's important to remember it isn't a real life example or a recommendation.

However, the question "Can you retire earlier than you think?" is one that many people should consider. With careful planning, realistic expectations, and professional advice, early retirement may be more achievable than you realise.

If you're curious about your own retirement possibilities, consider consulting our financial advisers to explore your options. You might be pleasantly surprised by what you discover.

Can you retire early?

* The figures are based on investing in the Prudential PruFund Risk Managed 2 Fund which is a low to medium risk fund with an expected growth rate of 6.5%