Unless you have a very well-paid job, or are expecting a lottery win, the idea of retiring early may seem like an impossible dream. But by starting early and committing to regular saving, perhaps you can nudge the dream a bit closer to reality.
Some people even go to extreme lengths to try to retire early – which may involve dramatically cutting back their spending while trying to maximise their savings.
However, for many, this may be an unsustainable way to save, but you could still boost your chances of retiring early by making more moderate lifestyle changes.
Here, Laura Laidlaw, head of customer savings at Standard Life, looks at how this can be achieved.
1. Know what you want
Like anything, it is important to have a goal to work towards. Being realistic with what you want from your retirement, and what this will cost you, will help determine how much you need and how long you need to work for to get it.
Considering how much money you will need to live on will be dependent on a variety of factors, from the kind of lifestyle you want, where you want to live and whether you want to continue some form of work.
Remember that early retirement doesn’t necessarily mean giving up work altogether. Many retirees kick-start part-time careers in something they love, or pursue a hobby or side hustle that could make extra money. Factoring in earnings from this should help your planning too.
2. Start early and prepare to cut back
Once you have a clearer idea of your goals and what you’ll need to fund them, you’ll need to work out how to get there. If you start early enough, there are many ways to make small changes that will build up to be substantial savings in the long-term.
It’s understandable that extreme budgeting isn’t for everyone, but being stricter about what you spend your money on could help make an earlier retirement a reality.
Simple savings can be made in your everyday spending. You could change where you shop, switch utility providers, use vouchers and cashback websites, swap expenses like shop-bought coffees or maybe cancel monthly subscriptions you don’t use.
Once you have worked out where you can make savings, be savvy with where you put that extra money. For example, you could consider topping up your pension, if you have one. But remember you won’t be able to access pension savings until age 55. Another option for long-term investment, which is more accessible, is a stock and shares Isa. While investing can carry risks, over the long-term the returns may potentially be greater.
3. Be smart with the cash you save
You don’t need to be close to retirement to think about saving into a pension. As soon as you enter the world of work, putting savings into a pension is a brilliant way to be tax efficient.
Some employers offer matched monthly contributions to your workplace pension, so if you are lucky enough to be offered this you should take advantage with extra payments to boost your retirement fund.
It’s also worth considering putting any work bonuses in future years into your pension. If your employer gives the option of making a pension contribution using bonus sacrifice, the boost to your pension could be worth much more than if you took the bonus as cash.
4. ‘Side hustles’ can also boost your pension pot
Climbing the career ladder is one way to boost your income – but starting a side line enterprise is another. Look into other options and don’t be put off by ventures that will only add small increments to your monthly income – every little helps across a longer period of time.
Get creative about ways to earn a bit more money. This could be anything from selling things you no longer need on auction websites, or turning a hobby into a small business to work around your main job. You might even consider renting out a spare room in the future if you have one. Whatever it might be, any additional income could help to get you closer to early retirement.
5. Seek professional advice
Trying to work out how and when to retire can be difficult, so using a financial adviser could help make early retirement a possibility.
A financial adviser can discuss your plans, including when you can afford to retire, what you can afford to spend each month or year, as well as help you choose the right investment options to get the most out of your money.