Since breaking into the mainstream in the 2010s, the FIRE movement has become increasingly popular. Standing for “financial independence, retire early”, the initiative is largely propagated by frugal millennials who seek to cease paid work (or at least only explore it optionally) and retire earlier in life than the average age – which government figures reveal to be 65 for men and 64 for women.

To do this, these individuals usually follow one of various set lifestyle plans. Regardless of which they choose, each typically has similar principles underpinning it, such as:

 

  • Aggressive saving, often 50% or more of their income
  • Living extremely frugally to keep living expenses as low as possible
  • Investing in specific assets, either to generate an income or compound returns that facilitate a retired lifestyle
  • Avoiding all forms of debt.

 

Those following these steps often aim to achieve financial independence and have the ability to retire by around the age of 40.

The FIRE movement is undoubtedly an extreme example of how to manage wealth, and you certainly have to have a certain type of personality to want to pursue it.

Even so, the goal of retiring early is a common one, and stopping work ahead of the average might well be a target for you too.

While 40 might be particularly early, there are many UK individuals who want to retire earlier than the average. According to data from Aviva, 60 is the most popular age to retire, with 1 in 4 Brits who aspire to retire early aiming to do so as they arrive at their 60th birthday. Meanwhile, 1 in 5 want to do so by age 55.

This is a common and understandable goal. Having spent your working life diligently setting money aside to support you in future, you might well want to ensure that you have as long as possible to enjoy the fruits of your labour, just like those participating in the FIRE movement.

However, if you plan to do this, it’s important to be aware that there may be additional costs involved. In fact, new research suggests that you might need as much as £1.3 million to retire at 55.

So, discover why there’s such a tariff involved with retiring early, and how a financial planner can help you achieve the retirement you want.

You might need a £1.3 million pension pot if you want to retire at 55

There is no set retirement age in the UK. It’s true that you can’t typically start taking pension benefits until the normal minimum pension age (55 in 2024/25, rising to 57 in 2028). Furthermore, you can’t claim the State Pension until you reach the State Pension Age (66 in 2024/25, rising to 67 by 2028).

But, nothing stops you from retiring at any age you choose, which is exactly what allows the FIRE devotees to finish working at 40.

So, it’s no surprise that 1 in 5 people would like to retire the moment they can start accessing their pension funds. Your pension may well be your largest financial asset in retirement, meaning that being able to draw on these funds could allow you to stop working and start living on these savings.

Crucially, retiring at 55 would give you an additional decade in retirement compared to the average retirement ages of 65 and 64 discussed above, and this is where the expanded costs come in. Retiring at 55 would mean needing to fund your lifestyle for a further 10 years, considerably increasing the overall expense of your retirement.

According to figures compiled by interactive investor, you would need £1.3 million (with 2% inflation factored in) to retire at 55 now and live a “comfortable” lifestyle. That’s an additional £495,000 compared to if you retired at 67.

Retiring five years later at 60 is slightly less expensive, but still requires a £1.1 million pot. That’s £315,000 more than if you chose to retire at 67.

As a result, if your goal is to retire earlier than the average individual, these figures show that you would need to build considerably more in savings.

Estimates like this mean little to the individual

Before you go panicking that your pension savings won’t be sufficient for you to retire early, it’s important to take a step back and remember that estimates like these mean little to you as an individual.

The interactive investor figures detail the cost of three different types of retirement:

 

  • Minimum
  • Moderate
  • Comfortable

 

In the examples above, it is a “comfortable” retirement that brings about the £1.3 million cost.

However, while these figures might be an approximation of what you need in later life, it is far from personalised advice. The figures do not take into account key facts, such as how your wealth is organised, and where the majority of your wealth is.

For example, if you own a business, your company might actually be your most valuable asset – although it’s still sensible to have a pension fund as a business owner, as we discuss in another article.

In this case, it might not be the size of your pension that determines whether you can afford to retire at a certain age and still live the lifestyle you want. Rather, it might be your ability to extract the value from the company you run.

Furthermore, another factor that’s perhaps most important of all is your lifestyle itself – that is, what do you want to achieve with your money?

Think about how you want to spend your time in retirement. From holidays and travel, through leisure and entertainment, all the way to your daily living expenses, closely consider what you’re saving toward.

Doing so will give you an accurate representation of how much it will cost to maintain your lifestyle in later life.

Once you have this information to hand, you can work out what you might need to have in your pension or elsewhere to support your lifestyle. Then, you can make informed decisions as to when you can actually afford to retire, and whether retiring early is a realistic possibility.

Working with a financial planner can help you achieve the retirement lifestyle you want

Figures like those from interactive investor can make for a good starting point in understanding how your choices could impact your retirement income. But realistically, they can’t give you the full picture of your individual costs and needs. Fortunately, this is where financial planning can really add value.

At Cordiner Wealth, we advocate a goals-based financial planning approach. We start by getting to know you and what your goals for the future are first, and then design a financial strategy accordingly that helps you organise your wealth so you can reach your targets.

We can also model various scenarios, such as what would happen if you chose to retire at 60, 55, or even earlier. That way, you’re armed with the information you need to make decisions that suit you and your family, and keep you on track towards achieving your life ambitions.

If you’d like support living your desired retirement lifestyle, please do get in touch with us.

Email hello@cordinerwealth.co.uk or call 0113 262 1242 today to find out what we can do for you.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The Financial Conduct Authority does not regulate cashflow planning.