£250,000 in your pension? How to retire early…

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£250,000 in your pension? How to retire early…

15 June 2021

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In your mid-40s, with £250,000 in your pension pot? Wondering if you really have to wait until 67 to retire?..

Well, perhaps not – with a little bit of planning and investing you could retire early.

How much will I spend in retirement?

The Pension and Lifetime Savings Association and the University of Loughborough have researched the amount required per annum to provide a ‘comfortable retirement.’ They concluded that, for an individual, it was around £33,000 a year. This sum certainly isn’t a lavish figure: it’s enough to provide £56 a week on food, enjoy a nice holiday in Europe and spend £1,000 a year on clothes, shoes and other gifts. So, perhaps ‘mildly comfortable’ might be a more accurate description.

How you can easily save for a more comfortable, early retirement?

To achieve this, all I’m going to ask you to do is save and invest £1,000 a month. If you are earning £80,000, that’s 15% of your annual salary. Of course, the majority of that could be made up by employer pension contributions, meaning it may not entirely have to come out of your pocket.

If you’re 45 today and your savings are invested well, making a conservative 4% a year, by the time you arrive at your 60th birthday, you’ll have just under £700,000.

William Bengen is an economist famous for creating the 4% rule after analysing 50 years of historical returns across every asset class. He determined that in all circumstances, regardless of when someone retired over the 50 years, they could take annual withdrawals of 4%, and the pot would always last 30-years. By applying this rule, you could take £28,000 a year from your £700,000 retirement pot. Not quite a comfortable retirement but almost.

However, you’ve probably done some quick sums – if it did run out in 30 years and you retired on your 60th birthday, your 90th birthday could be a pretty miserable one…

Find out more in this guide

How much income do you to be comfortable, how much do you need invested and how to pay less tax...

Download guide

Retire early - don't forget the state pension

Fortunately, if you’ve made 35 years of national insurance contributions, you’ll be eligible for a full state pension of just under £9,340. For the first seven years of retirement, you’ll have to draw entirely from your own assets but your state pension should be a real game-changer. Due to the additional £9,340 of income (increasing with inflation), your pot should now last well into your late 90s and you can close in on that comfortable retirement figure of £33,000 per annum.

Investing your money across different tax wrappers, to reduce the tax you’ll pay in retirement is paramount as the £33,000 is very much a net figure. The investment strategy you employ will also be of equal importance to ensure your pot is growing at a sufficient rate to reach your early retirement objective.

So, if you’re in your 40s and have £250,000 in your pension pot and want to retire early, get planning, get investing and maybe take some advice!

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Saltus Financial Planning Ltd is authorised and regulated by the financial conduct authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested.

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Financial planning

Financial planning can help you reach your goals in life, whether you want to determine when you can retire comfortably, bring organisation to your financial world or pass on your wealth effectively.

Pensions and retirement planning

Deciding when to retire is a challenging decision and can feel like a leap of faith. At Saltus, we gather information on all of your existing assets and then use our technology and expertise to show you exactly how to achieve the retirement you’re after.

Reducing your tax burden

How to structure your wealth and access income should be approached in a sophisticated way. A detailed financial plan may use pensions, ISAs, general investment accounts, offshore bonds and other tax wrappers to ensure you can draw your money in a tax-efficient manner.

Consolidating your wealth

Holding multiple investment accounts and pensions can mean they’re hard to keep track of and administer. We’ll help you overcome this by consolidating your accounts into a single plan so that you can understand your financial position with ease.

Protecting you and your assets

We protect our cars and houses without much thought yet you might be the most valuable asset in your family. Whatever your situation, we can provide advice to ensure you have the right level of insurance in place to keep your finances protected.

Passing on your wealth

Estate planning is more important than just having a Will. We’ll work closely with you to understand how estate planning, which has emotional as well as financial consequences, can impact your overall financial plan.

Significant life events

Significant life events can present great opportunities but also considerable challenges. Whether you are going through a business sale, divorce or are receiving a lump sum, we’ll help build a financial plan to meet your changing lifestyle.

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