Retiring early has always been seen as an aspirational objective. Stopping work before you’d originally planned to, and starting to live a life of leisure, is something you may daydream about, particularly during a hard day at work, or stuck in a traffic jam to or from the office!
You may know someone younger than you who has already retired. It’s hard not to feel at least a pang of envy, especially when they tell you what a great time they are having.
However, it’s important to bear in mind that the grass isn’t always greener. Often, the desire to retire early can become a hindrance and a weight around your shoulders, rather than something to look forward to.
Everyone will have their own idea of what early retirement means
You can withdraw your super in Australia once you’re 65, even if you’re still working.
If you retire before you turn 65, you can get your super when you reach your ‘preservation age’.
Your preservation age depends on when you were born. If you were born after 1 July 1964, this is age 60
In the UK, you can access your pension fund from age 55 (rising to age 57 in the UK in 2028). But, that doesn’t necessarily mean you should.
Traditionally, if you think about retirement age, it will normally be between 60 and 65. But, with changes in longevity and lifestyle, those ages may not apply to you in the same way they might have done to your parents.
In reality, your perception of your retirement age will be unique to you.
It may be when you have paid off your mortgage, or when your children have finished university. Alternatively, it may be based on you having a certain amount in your retirement fund.
Having said all that, there’s no doubt that stopping work, getting out of your daily routine, and starting to enjoy a well-earned retirement can be an attractive option.
Maybe you aren’t enjoying work anymore, or your partner and friends may have retired already, and you want to join them in a life of leisure?
There doesn’t have to be any hard-and-fast rule about having to retire at a certain age. Nor does it have to be a case of stopping work on a Friday and beginning your retirement on the following Monday.
The FIRE movement takes early retirement to extremes
One recent phenomenon driving a lot of the discussion around the attraction of early retirement has been the “FIRE” movement.
This originated in the US, based around individuals who wanted financial independence and to retire early – hence the acronym FIRE. Many looked to retire as early as age 40 or 45.
Their method of achieving this is based on a life of extreme frugality, spending as little as possible and investing the excess – in some cases as much as 70% of their income.
Furthermore, their aim of retiring at such a young age does raise some issues, which could be an impediment to many except the most committed following a similar extreme example.
For one thing, anyone with children or elderly relatives requiring financial support will know that such frugality and reluctance to spend money in those circumstances is next to impossible.
Additionally, is it really worth subjugating your happiness to such an extent when you are younger, more active, and more receptive to new experiences?
It’s easy to understand the benefits of retiring early
As you have already read, there’s no doubt that, on a basic level, early retirement is an appealing proposition.
You’ll no longer be tied down by work and worn down by office politics, and the demands of a busy and stressful job.
You’ll have more time to exercise and sleep, which will create health benefits.
You may also be escaping from the daily commute and freeing up time to travel and start ticking off some of the items on your bucket list, either at home or abroad.
It’s understandable that you’ll see these as clear benefits when it comes to deciding to retire early. But it’s important to consider the other side of the coin.
There are benefits of work that you may need to replace
Stopping work early will result in a premature loss of several benefits that you may well take for granted.
This will be the case whenever you eventually retire, but it’s worth being aware of the challenges you will face, regardless of when that will be.
For one thing, you will no longer receive a regular earned salary and will have to start relying on your accrued retirement savings to live on. There may also be other financial benefits you will lose access to, such as a healthcare plan.
Other, less tangible benefits of working that you will no longer enjoy, could include:
- A ready-made social network of co-workers
- The structure and discipline of a full-time job
- The sense of achievement work can give you, such as meeting objectives and completing new deals
- The sense of identity you get from being “someone” at work.
So, alongside planning your finances without a regular salary, it’s important to take some time to consider how not working could affect you.
Bear in mind that you might not feel any negative effects immediately. It’s likely that the period straight after you stop working will simply feel like an extended holiday, which could last up to a year, or even longer.
However, it is prudent to consider how you will feel when that “holiday” is over, and you need to start settling into a new routine.
You need to be comfortable that you can afford to retire early
Given improvements in healthcare and increased awareness of the importance of a healthy lifestyle, if you do retire early it’s possible that your retirement could last for 40 years or more.
Even if you retire at the age you had always intended to, your retirement fund will need to provide you with enough to live comfortably for the rest of your life.
If you have doubts about the sustainability of your fund, you may not feel early retirement is such a good idea. Instead, you may want to consider working for a couple more years, with the resulting additional contributions into your retirement fund, before starting the decumulation process.
This can help ensure you aren’t having to make difficult financial choices as you get older. Additionally, knowing you are building more financial resilience will give you valuable peace of mind.
By using cashflow planning, we can help you consider various potential scenarios around your retirement planning, and give you the added confidence that you will not outlive your fund.
Phasing your retirement could be a beneficial compromise
You may not want to retire early for fear you’ll regret the decision but also don’t want to wait so long that you miss out on the pleasures of retirement. In these circumstances, there is potentially the option of a partial, or “phased” retirement that could enable you to enjoy the best of both worlds.
For example, you may want to think about working reduced hours and beginning to enjoy the retiree lifestyle on your days off. This will mean that you don’t lose the advantages of working but can start to rehearse for your final retirement.
Alternatively, you may want to consider a different, less stressful job, maybe closer to home or on a “working from home” basis.
You may even want to opt for a trial retirement, where you stop working for a period with the option to return to working life.
Whatever you choose, we would always recommend that you seek expert financial advice to ensure that, from a monetary perspective, you are making an informed decision.
Get in touch
At bdhSterling, we have a wealth of experience in helping clients with their financial planning.
If you’re thinking about early retirement, or you’d like to explore whether this is a realistic option for you, get in touch to find out how we can help you.
Please note
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of ATO and HMRC legislation, which is subject to change.
