Six things to do now if you want to retire early

Even though we may dream of swapping the daily commute for long lunches and a life without work emails, early retirement can sound like a fantasy reserved for the very wealthy. But while leaving employment years ahead of schedule may seem out of reach, there are steps workers can take to bring the prospect closer. With younger people facing high housing costs, the lingering impact of the cost of living crisis and a retirement system in which traditional salary-linked pensions have largely disappeared from the private sector, the financial landscape is getting tougher. Shorts Yet the financial experts we spoke to say it is still possible, provided you start planning well before you intend to stop work. Start as early as you can Time is one of the biggest advantages an aspiring early retiree can have, experts said. The earlier money is invested in a pension, the longer it has to benefit from compound growth, where investment returns generate further returns. Sarah Coles, head of personal finance at AJ Bell, said: “The sooner you get it started, the better, because [there is] more opportunity [for] your investments … benefit from compound growth. “You can be automatically enrolled into the pension scheme at work from the age of 22, but as soon as you start earning, you can ask to join the pension scheme at work. “As long as you make at least £6,240 a year, when you pay into the pension scheme, your employer has to pay in too.” Compound growth is when your money grows not just from your original amount, but also from the extra money or profit that your money has already made. Increase contributions as your salary rises Putting a huge amount into a pension at the start of their career is unrealistic for most people.A more manageable approach is to increase contributions as earnings rise, rather than allowing every pay rise to be swallowed up by higher spending. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, added that making the most of your workplace pension by boosting contributions whenever you get a pay rise or promotion can really “turbo charge your pot”. Coles added: “It can help to commit to a specific percentage of salary, so your contributions automatically rise with your income, and look at increasing that percentage when it’s affordable.” Employer contributions can also provide a valuable boost, particularly where companies match what their employees pay in. Kirsty Ross, proposition director at People’s Pension, explained: “Find out how much your employer will contribute, and where affordable, make full use of any matching available.” Build a bridge before your pension is accessible For someone hoping to retire in their 40s or early 50s, there is a potential problem with relying entirely on a pension, as private pensions cannot be accessed until you are 55 – with the number soon to rise to 57. Craig Rickman, personal finance expert at interactive investor, said: “If pensions form a key cog in your retirement wheel and you aim to pack up work before the normal minimum pension age, which … could increase further in the future, you’ll need a strategy to bridge the gap.” Saving into ISAs – essentially tax-wrappers that can put £20,000 a year in – can play an important role because the money is accessible before pension age. This flexibility, known as building an “ISA bridge”, can provide some “welcome breathing space” to fund your lifestyle until your pensions kick in, Rickman added. The result is that early retirees may need to think about building two pots rather than one, with pension savings for later and accessible investments for the years in between. Make sure your money is invested well The amount of money you put into an ISA or a pension is only part of the equation. The way that money is invested can also affect how quickly a retirement pot grows. Generally, when you save into a workplace pension, your money goes into a default fund, but you can adjust this if you wish. Coles said: “Most people don’t make a decision about investment, so their pension ends up in the default fund, which may be fine for the average person. “However, getting to grips with investments and making active choices gives you the chance to make sure your investments are right for your needs. It’s a chance to get your money working harder for you.” Generally, to get higher returns, you need to take on a greater element of risk, and this may involve putting money into equities in companies that are listed on the stock market. But Rickman says this is worth looking at, particularly over a long-term horizon where your money will have a chance to recover if it drops in value. Rickman said: “It’s crucial to consider investing in the stock market, rather than stashing savings in cash, as the latter is more vulnerable to the corrosive effects of inflation.” Work out what you actually need Choosing an age to retire is only half the calculation. You also need to know how much your life will cost once you stop working. Someone planning to travel extensively in their 50s will need a very different pot from someone planning a quieter lifestyle. Kirsty Ross said: “Consider the lifestyle you want and what it might cost, recognising that expenses such as a mortgage or commuting may fall while spending elsewhere could increase. “Take stock of your pensions and other savings, use a retirement calculator to understand any gap and review the plan regularly. Being flexible about contributions, retirement age or gradually reducing working hours can help make the numbers work.” Consider a softer exit from work Early retirement does not necessarily have to mean stopping work altogether. Moving to part-time hours or taking on occasional work can provide an income while reducing the amount you need to take from your savings. For some workers, financial freedom could therefore mean having the choice to work less rather than never working again. Many people in their 50s or 60s are choosing to either “half-retire” or to return to work in entirely different roles than they had before – sometimes known as “unretiring”.