How To Retire Early In The United Kingdom (2022)
We live in a world that is very fast-paced, and it’s no wonder that more people are interested in retiring at an early age. There are a lot of contributing factors that can help you reach your goals of early retirement, but it requires a certain level of motivation, determination, and hard work through savings.
This guide has been designed to show you all the steps involved in saving towards an early retirement, and to demonstrate how achievable it can be. If you are willing to put in the work now, there is no reason why you shouldn’t be able to retire in 10-12 years’ time.
There are a lot of different ways you can begin saving for an early retirement, but the biggest tip is to start soon. This can allow you the best possible chance of reaching your goals, and see that it could be more achievable than you might have anticipated.
Try to be realistic about how much money you want to have access to during your retirement, because you do not want to be faced with lack of funds. This is everything you should know when you are considering saving towards early retirement living and working in the UK.
Keep in mind none of the below is financial advice, but rather just meant to be an introduction and starting point on your early retirement journey; after reading this guide make sure to watch more videos on the topic or speak with a financial planner to further solidify your retirement plan.
Anyhow lets get into the content and how to retire early in the uk — now that you know what to expect from the rest of this guide, let’s start at the very beginning — what early retirement is and how to determine if it’s right for you or not what you’re actually desiring right now.
Table of Contents
Thinking About Early Retirement?
If you are considering retiring early, and want to be able to financially support yourself earlier than you might be projected to by your employer, then you have come to the right place. This is everything you need to know before making the decision to pad out your savings account, and how you can get there.
What Is Classified As Early Retirement?
Firstly, the average UK retirement age is currently 65, and by definition early retirement means finishing work before this age. Depending on your current employment situation and what income bracket you fall into, you might be able to make the steps to retire at a much younger age than the average.
Retirement can be defined as being ‘finished’ with regular work, and that you have gained a certain amount of financial independence. Money really does make the world go round, and if you want to be able to support yourself without the need for regular work, then you should consider working on your savings account, because a lot of pension savings schemes are only applicable to the average retirement age rather than significantly younger when you might want to be free of work.
Try to take your time planning an early retirement, and think about how you can spend your time. Some people enjoy creating things, and might even benefit from developing their own brand or small business. This can help to see some level of regular income with less need for the regular 9-5.
Other people might want more time for their passions, which is why a career change, or even change to your life circumstances can help add a little more perspective to your routine and even make your goals more realistic.
Things to Consider Before Trying to Retire Early:
It is important to consider the following questions before saving towards early retirement. It is not always easy to do, so you should take the time to think carefully about each of the following. Something that can help with this process is picturing yourself in ten years’ time, and see how realistic it could be to retire, based on your current financial situation.
- Do you actually want to retire and stop working or do you just want the freedom and flexibility that comes with financial independence?- A lot of people dislike their regular job, which might be what is driving them towards retirement. Try to be realistic about what your priorities are, because you might just need a change of scenery or employer in order to feel like you have more flexibility and freedom.
- How reasonable will it be to achieve financial independence according to your lifestyle wants and needs? How long will it take?- Take a closer look at your average monthly income compared to your regular expenses. If you live a more frivolous or luxurious lifestyle, it will be a lot harder to achieve enough savings for early retirement.
- Would you be okay with moving to a lower cost of living country, or area, to achieve your goals sooner?- There are a lot of perks that come with relocating, and a change of scenery to somewhere that is, on average, cheaper, can help you save more money over a shorter period of time.
- Do you want to strive for early retirement early in life, or just moderately before most achieve retirement?- This depends on your personal goals, and how early you can realistically see yourself becoming financially independent.
- Should you contribute heavily to a pension or other tax-advantaged investment schemes (ISA), or will you need more liquid investments to retire at the age you desire to retire at?- As we’ve discussed, a lot of pension schemes are not accessible until you reach the average retirement age at around 65. You might want to consider investing in the stock market, or even setting up your own savings account that you can rely on for regular expenses once you retire.
- How are you going to manage emergency expenses and potential long-term health issues?- This might seem obvious, but it is one of the most frequently overlooked scenarios when it comes to preparing for retirement. The fact that older people are more likely to suffer from long-term health conditions can mean that additional expenses that haven’t been accounted for can easily arise.
Understanding FIRE & What Type You Want To Achieve:
FIRE is an abbreviation that is used by people who want to achieve financial independence at younger ages than average. It stands for Financially Independent Retire Early, and while there are different categories of FIRE, it requires complete focus and intensity to allow individuals to reach their retirement goals. FIRE also encourages people to work on their long-term goals and think of realistic ways to earn additional income, cut out unnecessary expenses, and make saving a priority.
There are different types of FIRE, and it is worth deciding which type is right for you. They have been carefully designed to help you stay on track and motivated to keep your goals in sight. FIRE is divided into lean-FIRE, traditional FIRE, fat FIRE, and Coast FIRE.
Lean FIRE is probably the most extreme version of the FIRE framework, that allows faster savings than the other methods. Lean FIRE is achieved when your retirement savings cover the minimum amount of regular monthly expenses. This means that it can be achieved from much younger ages than other methods.
Traditional FIRE requires you to set aside your emergency savings, calculate how much money you need to save, and invest appropriately. By comparison, fat FIRE is the most similar saving method to traditional retirement plans. This is because the savings generated using this technique are significantly larger, and it allows for higher amounts to be saved for retirement which can add to a more luxurious lifestyle.
Coast FIRE is usually calculated by multiplying the desired amount you want for each year in retirement by 25. It is another highly effective way of saving, and can involve more sacrifices at an early stage than other FIRE schemes.
FIRE can be a little confusing at a glance, which is why it’s important to decide which type is right for you. This is largely determined by your current financial situation, age, and lifestyle wants and needs. Financial independence will alter for everyone depending on how old you are, what age you are wanting to retire and what lifestyle you want to maintain.
Lean FIRE is generally preferred by younger entrepreneurial people who don’t have many attachments or responsibilities. This is mainly because of the higher amounts that are needed to be saved during the early stages of retirement savings. Another reason is the fact that Lean FIRE involves slightly lower total savings that an individual will need to use during retirement.
In contrast, Traditional FIRE is largely the safest and most suitable for most people, as it provides balance and greater security than lean-FIRE. It can allow you to save much higher amounts of money over a more flexible period of time, which is why this is often the preferred method of saving.
Fat-FIRE is usually best for people who have extremely high-paying jobs, and don’t want to make any compromises in their retirement, or who aren’t quite burned out from their job, or business, quite yet.
How Can It Be Achieved?
Now that you’re aware of the different methods of saving, let’s cover some of the key stages that follow the initial planning stage. Something that is essential is that you are being realistic about how much you earn, and how much you can afford to save on a regular basis.
Become Frugal & Addicted To Saving
If you can, try to avoid spending too much money on items you don’t need. This can help you pad out your savings account, and allow you to work towards early retirement. Depending on your current income and how it compares to your current essential outgoings, it is always a good idea if you aim to save half of your monthly income in order to help you become financially independent sooner.
Of course, these options might not be ideal for someone with a lower than average income, which is why you should consider taking the time to assess your monthly outgoings. This can help you in a few ways, because it allows you to think about how necessary each of your regular payments are.
In addition to this, is can allow you to focus on only purchasing the essentials. Try to get rid of some expenses that you might not need, such as subscription services that you don’t use anymore. You’d be surprised what impact this process can have on your long-term savings plans.
Try to keep yourself motivated by tracking your savings to see how much progress you have made. This can remind you to prioritize your goals and keep working towards them. Early retirement is directly linked to financial independence, which is why you should avoid splurging on things like clothes, travel, holidays, and gifts as much as possible.
Something that can help with this is setting small goals for yourself so that you can see regular gains. Another technique for more visual thinkers is to record the moves you have made on a poster or diagram. This can help you to stay motivated and keep working towards your goals.
Once you’ve saved a few months of your expenses, made yourself an ‘emergency fund,’ you should start investing heavily to build up passive income. This is what you will use for day-to-day expenses during retirement, and you should use it to support yourself, which is why it’s important to avoid rushing this part. You can never have enough when it comes to savings, so you should try to keep as much as you can in a safe place.
Earn More Money
Another great way to increase your retirement savings and make your long-term goals more achievable is to find ways to earn more money. If you are satisfied with your current employer, you could organize a meeting with them and try to ask for a pay rise. If you have been working with your current employer for several years and have built up a great level of skill and knowledge, then you might be able to get a pay rise. This will add to your regular income, and allow you to save a little extra at the end of every month.
If you are not happy with your current position, or if you think you would benefit from a change of scenery, then you could consider changing your full-time job. This can be a great way to broaden your horizons, meet new people, and even increase your salary if you are applying for a more skilled position.
Work on your resume and try to talk about how your current employment position has allowed you to realize your potential. Something that could also be worth bringing up during the interview is your financial goals, because your recruiter could point you in the right direction in terms of savings accounts or investments.
If you have more time and energy at the end of your regular working day, you could consider taking up a part-time job if possible to help you save and invest more each month. Some people choose to apply for weekend jobs in order to make their financial goals more realistic.
While the majority of part-time jobs are offered in supermarkets, restaurants, or other service-based industries, you could reach out to local businesses and see how flexible they are with part-time employment. Who knows? This could be an opportunity to realize other passions, and even consider a more long-term career change.
Another way to start earning a little extra money on top of your full-time job is to start a side hustle or even begin your own business. Depending on where your skills lie, you could start by selling your creations (think: Etsy), tutoring locally or online, or starting an online business of sorts. It can be difficult and somewhat expensive to start a business from scratch, so it is also worth considering whether the long-term gains outweigh some of the initial short-term costs.
You could also consider selling unwanted items and adding that to your savings account to give it a little extra boost. Something that a lot of people tend to do is purchase cheap second-hand furniture, and clean and reupholster it to sell on with a profit. This is a great way to start a small business and make a brand for yourself if you have a particular skill for spotting unwanted pieces of furniture that have potential.
Think About Investing Your Money
Another key way that you can make the most out of your money is to consider investing your money. It is definitely worth considering a low-cost tracker fund when you are saving for retirement. These can help you earn money and keep it in a secure place while you are still saving. Try to consider investing in something that you are passionate about, such as a specific platform in the stock market.
Additionally, you should think about what type of investment strategy would help reach your intended time frame, and how much you need to invest in order to achieve your goals of early retirement. There is a risk that comes with any investment, so it is worth doing your own research to find the most safe and secure platform that will use the latest figures from the stock market to increase your savings pot.
Of course, there are risks that come with investing in the stock market, because it can change at any minute. This means that you are more vulnerable to significant losses during times of financial hardship within the economy. However, a lot of financial advisers will tell you that it is worth considering the possibility of higher long-term gains, and resist the urge to withdraw your investment when the market is not in it’s best shape.
Investing in the stock market is something that takes a lot of time to see substantial results, so you should try to be patient and seek financial advice in order to spot scam artists online a little easier.
Tips And Tricks To Help You Achieve An Early Retirement
In addition to the main steps that you need to take, there are other factors that you should consider. These can have a direct impact on your retirement goals, because it might mean that you will need to allow for additional outgoings on a long-term basis.
One of the most important pieces of advice is to stay motivated and remain realistic in your savings plans. This means that you should seek a higher salary if you believe you are entitled to one, and consider additional sources of income if possible.
Pay off any debts, mortgages, and high-interest loans you have before retiring – You will not want to retire knowing that you have outstanding expenses and that your amount saved will be cut into for larger expenses. Because of this, you should try to pay off any high-interest loans, debts, and as much mortgage as you can before you decide to retire.
Knowing that your home is your own, and that you have paid off all or most of your mortgage can allow you to rest easy and take comfort in knowing that the majority of your larger expenses have been dealt with.
Work out a monthly budget/finance plan that you are able to live off of now, and a rough idea of your budget when your early retirement goals are realized – Creating a realistic plan can help you to see how realistic your goals are, and be more accurate with tracking your progress. This can also help you think about how you want to spend your retirement and whether the allotted amounts will be enough to cover you during your early retirement.
Creating a detailed budget and plan can show you where all of your money is going, and keep you informed about more substantial changes such as emergency funds, or other unforeseen expenses.
If you’re young and haven’t had kids, but plan to in the future consider roughing it cheap for a few years to build up a good nest egg before you start a family, it’ll reduce stress and help early retirement come much sooner – Try to focus your efforts on saving in general if you want to build a family.
This can help establish more consistent savings patterns and therefore make your retirement goals seem more achievable. Children can be expensive, especially when it comes to clothes and toys, so it is definitely worth compromising some of your luxuries now in order to save for the future.
Look into your current pension(s), and decide if continuing them is right for your retirement goals – Generally, some level of contribution is right for everyone, so it could be worth speaking with your employer about what your options are if you want to focus your savings on retirement planning. Of course, pensions are often designed to support people when they retire at around age 65.
There is typically less leeway for someone who wants to retire significantly earlier than this, which is why you could consider opting out of your employer’s pension saving scheme. This can allow you to decide where to put your money, and consider all of your savings options.
If you work remotely, consider moving to another country to have lower expenses and increase your saving & investing rate, or simply consider moving to a cheaper cost of living area in the UK such as Northern Ireland – Again, relocating can be a great way to see long-term gains, as you will want to be spending as little as possible on necessities like rent or mortgage payments.
Moving can be a good option as long as you won’t be missing out on some things including being close to family members, friends, and schools if you have children.
If you plan to retire in the UK, consider building up your credit and working towards buying a home – In the long-term, if you’re staying in one location, it’s one of the best investments you can make. This is because it ensures your rent never goes up later in life, causing additional stress and strain on your retirement savings fund. The housing market can be difficult to navigate if you are new to it, so it could also be worth seeking professional advice within this field.
Always have funds in your savings account for emergencies- Try to keep your savings account more well-stocked than you think it should be, because you never know when you might need additional funds to help with an emergency. Avoid getting yourself into predatory high-interest debt if unfortunate things happen, which is what the majority of people tend to experience when they are faced with challenging financial situations.
It is definitely worth taking the time to think about where you can see yourself in ten years’ time, and whether that involves more financial independence, or complete retirement. Try to use this to drive you and to stay on track with your savings.
While some people opt for visual aids such as diagrams, illustrations, or posters, others might prefer being able to regularly track their progress online. For this reason, it is definitely worth thinking about how you prefer to be presented with information, and what will help you to process changes within the stock market.
Some people might not actually want to retire at an early age, so it could also be worth thinking carefully about what it is you want. For example, you might want to make a substantial career change, start a business, or even ask for a pay rise. A lot of people try to save up for early retirement because they are not happy with their current job, so you should also consider a career change if that is what would make you feel more fulfilled on a daily basis.
It is also important to mention that early retirement isn’t always within reach for everyone. Different financial situations are the biggest influencing factor that can affect your long-term goals, so you should take the time to consider your options.
Try to be realistic when assessing your regular income and outgoings, so that you can still keep your head above water while putting a small amount of money away to your savings. Debt is another highly important factor that can limit someone’s long-term saving goals. This is because you will need to allow the additional expenses to allow you to pay off any outstanding amounts in addition to the interest rates.
To summarize, more people are considering early retirement than ever before, through FIRE savings frameworks, investing in the stock market, and living off a carefully planned budget as much as possible. Others are taking up part-time jobs in addition to their regular employment, because being able to retire at a young age also comes with the benefit of achieving complete financial independence.
Because the economy is not what is once was, more people are striving towards their goals, and working hard to achieve early retirement. Make sure that you have allowed yourself a respectable amount to live off when you choose to stop working, and enjoy the peace of mind that comes with financial independence.
Check out some of the links above for more detail on how the stock market can help you save, and additional mechanisms that are in place to help with the process. Enjoy your retirement and spend your time doing things that you love.
Early Retirement in the UK FAQ's:
While there’s many questions to be had about retiring early in the UK these are the ones we’ve been asked most and felt the need to add to the article — if you have any questions not answered below feel free to reach out to us through our contact page and we’ll get back to you with our opinion on it.
How much money do you need to retire in the UK?
This varies drastically depending on where you want to live and the quality of life you desire, but generally anywhere from 400,000£ to 650,000£ if you’re living frugally in a cheap part of the UK, and around 900,000£ to 1,250,000£ if you’re living in a big more expensive city and quite nicely.
This is if you want to live strictly off your investments though — in practice you’ll likely have a small pension contribution to supplement your investment income, or may have a property you purchased that lowers your cost of living (requiring less income from investments).
If you don’t have that much, and can’t get it in time to retire by the age you want to retire by, you can always look to retire abroad, taking your saved pounds abroad to a country like Turkey, Thailand, Mexico, Malaysia, the Philippines, or other such places where the cost of living is much lower, and retiring there. Most have retirement visas and various residency options that will allow you to stay long-term if you desire, and the costs of living are so low you can retire on as little as 100,000£ to 250,000£ depending on how you want to live, the low end living modestly, the high end living very well off without a real need for a budget.
What is a comfortable retirement income in the UK?
This varies drastically depending on where you want to live in the UK (or outside) and the quality of life you want, but generally anywhere from 15,000£ to 20,000£ if you’re living frugally in a cheap part of the UK, and around 36,000£ to 50,000£ if you’re living in a big more expensive city and quite nicely.
Of course more is always better, but that’s the base-line I’d aim for to make from investments combined with your pension or other sources of income before really making the leap to retirement, unless you’re young and plan to still work to some degree, just not full-time — as that’s what early retirement for young folks often looks like after the first year of enjoying the initial time off from their jobs.