How Much do I Need to Retire at 55?

If you have a pension pot, you’ll be able to access it from the age of 55, currently. Although just because you can, doesn’t necessarily mean you should. It is usually a good idea to preserve your pension pot for as long as you can before drawing on it, as this will be your primary source of income in retirement. However, if you did want to retire at 55, is that achievable? If you are asking, how much do I need to retire at 55, read on to discover all you’ll need to consider.

Firstly, is it possible to draw your pension at 55?

At the moment, it is possible to access a pension pot at the age of 55. However, from 2028, the minimum age will rise to 57. There may be further rises in the future, so it is a good idea to keep track of the situation.

How much retirement income will you need?

A common way to estimate how much income you’ll need in retirement is to use the ’70 per cent rule’. This says that you will need 70 per cent of your working income to maintain the lifestyle you want in retirement. So, if you retire on a salary of £60,000, you would be looking at achieving an income of around £42,000.

Will your income needs change during your retirement?

When you first retire, you may want to spend more and enjoy your new found freedom. Later, you may settle down and spend less then later still there may be a need for long-term care.

Will you have other sources of income in retirement?

You may have other sources of income in retirement, such as savings, investments, rental property, a part time job or consultancy work. It is perfectly acceptable to continue to work when you take your pension, even full time. You will need to consider income tax, however, as with all your income combined, you may exceed the personal allowance. You may also receive the state pension when and if you qualify. State pension age is currently on a sliding scale, so you will need to check when you will be eligible.

Will your outgoings change?

Certain expenses will continue in retirement, and some will be subject to inflation. Others, such as mortgage repayments, may reduce or finish altogether.

What will annuity rates be when you retire?

You may decide to purchase an annuity, a guaranteed income for life, either when you retire, or later on. Annuity rates are subject to change. You may also be able to claim an enhanced annuity if your health deteriorates.

How long will you live?

Living to the age of 90 and perhaps more is not unheard of these days. If you retire at 55, that would mean a 35 year retirement. Would your pension pot be enough to last that long? And how would your outgoings be impacted by inflation by that time?

How will the stock market perform?

If you invest your pension pot and make regular withdrawals, it will stay exposed to risk on the stock market, which means that its value can increase and decrease. Over time the market generally increases in value, but there will sometimes be periods of loss, and sometimes the market may even crash. Withdrawing money during a dip could erode your pot’s value faster.

How will your investments perform as your pension pot accumulates?

It is difficult to know how the investments in your pension fund will perform during the accumulation period. A steady rate of 4 per cent could be realistic, but it may be higher or lower than that. You can help boost your pension pot by taking investment management advice to ensure it is well-invested.

How much do I need to retire at 55?

Say you earn £60,000 a year and would like to maintain a similar lifestyle after retiring at 55. Using the 70 per cent rule, you’ll need £42,000 a year in retirement.

If you look at a 25 year retirement, with an average growth of 4 per cent interest on your pot, drawing out say £40,000 per year would mean a need for a £650,000 pension pot.

How to save £650,000 to retire at 55?

If you start saving from the age of 25 until you are 55, you have 30 years to build up your £650,000 pot. Assuming annual growth of 4 per cent, you’d need a monthly deposit of £925 to get to that figure, including compound interest. If you start later in life, you would need to pay more per month.

If you are claiming basic tax relief at a rate of 20 per cent, then your monthly contribution will reduce to £740. If your employer matches your contributions, then you will only have to pay in £370 per month which, on a salary of £60,000, will only represent a small percentage of your income. However, if early on in your career you are not earning anything like this figure, then it will probably be more than you can afford.

This is just a simplified look at retirement planning, which is subject to an array of variables and market conditions. If you want to achieve your perfect retirement, you are wise to take independent advice from a retirement planning specialist who will set out a personalised roadmap for you, and monitor it regularly so that it stays on track.

Looking to find out how much you need to retire at 55? Take independent advice from the specialist retirement planners at PMW.

At Partridge Muir & Warren, we have been advising individuals and couples on their retirement options for more than 50 years. Our advice is independent, widely trusted and focused on the best interests and personal goals of our clients.

If you would like to start looking at whether you can retire at 55, why not get in touch with our friendly retirement planning team, and arrange your no-obligation complimentary consultation?