How much do I need to retire? Can I retire at 55? And, if so, how to retire at 55? Let’s face it: if you’ve ever thought about retirement, chances are you’ve also thought about one of these questions — if not all three!
However, even though the prospect of retiring at 55 is appealing, the reality of leaving the working world early is no easy task (and typically requires a lot of planning ahead).
That’s why, in this article, we’re going to outline what you need to know about retiring in the UK and, perhaps more importantly, provide some tips that could help get you there a bit sooner, too.
What is the retirement age in the UK?
Before even thinking about how to retire at 55, it’s important to understand more about retiring in the UK on the whole — starting with retirement age.
In the UK, when you stop working is entirely up to you, with no legal retirement age.
The important thing to understand, however, is the age at which you’ll be able to access your pension(s).
Although it depends on when you’re born, the earliest age you can access the State Pension, for example, is currently 66 for both men and women.
For those born after April 5th 1960, however, it'll gradually rise by a month on a monthly basis, until it reaches 67 in April 2028. It'll eventually rise to 68, affecting those born after April 1977.
When it comes to withdrawing money from a workplace or private pension, you’re looking at 55 (which will increase to 57 in April 2028).
You can learn more about this in our Pension Guide.
What is the average pension pot in the UK?
Even though it’s not always a good idea to compare yourself to others, financially, sometimes it can be beneficial — especially when it comes to something as important as your retirement.
And, despite not being a definitive answer to “how much do I need to retire?”, knowing the average pension pot amount could at least help give you a bit more direction.
These figures from the Office for National Statistics [1] show the national average pension pot by age:
How much do I need to retire at 55?
Although everyone’s circumstances are different, a good rule of thumb to determine how much you might need to retire at 55 is the ‘70% rule’.
If you’re looking to maintain your desired lifestyle in retirement, then the 70% rule says you’ll need 70% of your working income to make it happen. So, if you retire on a salary of £50,000, you’d be aiming for an annual income of £35,000 from your pension.
How much you’ll actually need to retire at 55 will likely depend on other factors, including:
Pension Eligibility and Access: Whether it’s the State Pension or a personal pension (you can read more on those below), it’s crucial to check what age you’ll be able to access both, and how much you’re entitled to based on your National Insurance contributions. Both factors could affect your ability to retire at 55, so it’s probably worth checking how much and at what age you can get yours using the government’s State Pension forecast tool.
Retirement Length and Income: With UK life expectancy at 78.6 for men and 86.2 for women [2], ask yourself how much you’re aiming to get in annual retirement income against how long your retirement could last.
Retirement pension calculator
When it comes to getting a ballpark figure for your financial goals, using some sort of calculator can often provide you with the clarity and confidence needed to achieve them.
And, with Wealthify’s pension calculator, your retirement is no different!
In just a few simple steps, use our calculator to see what your pension’s projected value might be, before making small changes to your retirement age, contributions, or including pension transfers to see how they could impact your goal. The good thing about our calculator is that you can make changes to those numbers if your circumstances change, giving you multiple results for various outcomes.
Tips on how to retire at 55
If you’ve used our pension calculator and now feel confident in saying “can I retire at 55 — yes”, you’ll now want to learn some hints and tips on how to retire at 55. Thankfully, we’ve got you covered below!
Plan for retirement early
A good way to take control of your retirement is to start planning for it sooner rather than later. If you’re in your 20s, for example, you might think it’s a bit too early to think about your golden years — but that couldn’t be further from the truth!
After all, little and often from an early age is better than nothing at all (and it could end up being the difference when it comes to living your dream retirement).
If you can’t save earlier on in life, however, then there are other things you could do to free up some extra money and build your pension pot:
- Get your finances in order to understand your incomings and outgoings.
- Consider limiting your spending and developing healthy money habits.
- Create an emergency fund in case unexpected expenses come your way.
- If you can afford it, try increasing your workplace pension contributions.
Set up a personal pension
Regardless of your age, a self-invested personal pension (also known as a SIPP) is another good option when figuring out how to retire at 55.
A SIPP lets you build wealth in a flexible, tax-efficient way; you make your own contributions, with that money typically invested in a wide range of investments, such as bonds, shares, and property.
Standard rate taxpayers also benefit from a 25% government top-up, allowing you to contribute up to 100% of your UK taxable earnings for the tax year (or £3,600 if your earnings are less than that).
So, if you contribute £80, for example, then the government will add another £20 on top of that — taking your total investment up to £100!
However, total contributions across all your pensions can’t go over £60,000 each tax year, or 100% of your earnings (whichever is lower). This pension annual allowance includes any contributions made by you and the government; anything over this £60,000 won’t be eligible for tax relief and may be subject to income and capital gains tax.
Higher rate taxpayers are eligible for 40% tax relief, and additional rate taxpayers are eligible for 45%, although you may need to contact HMRC to claim the extra tax relief.
Although you can pay into a SIPP until you’re 75, you can actually access the money aged 55 (including having the option to take up to 25% of it as a tax-free lump sum). However, please note that the tax treatment depends on your individual circumstances and may be subject to change in the future.
Trace old pensions
If you’ve had multiple jobs and contributed to different workplace pensions, you might want to consider tracking them down (a process known as pension tracing).
You can learn more about this process in our specific pension tracing blog, as it largely depends on whether you know the provider(s) or not.
Once you have found them, then you might want to consider pension consolidation.
Consolidate your pensions
Pension consolidation basically means combining your pensions into one place.
People do this for various reasons, some of the most common being to make managing their retirement pot easier and saving money by only having to pay one provider fee.
Before doing so, however, it’s important to do your research and compare the different providers.
When shopping around, make sure you check the charges and fees, as they can make a significant difference to how much money you’ll have in retirement.
But don’t just focus on fees.
It’s also worth looking at the entire package offered by investment services; so, make sure you consider things like customer service, user experience, and investment strategy.
For more information, please read our pension consolidation guide.
Annuity vs. Drawdown
One last thing to consider when thinking about how to retire at 55 is the way in which you access your pension.
After all, every little decision matters when you have to make that money last an extra 10 years or so.
Here are the main differences between the two.
Pension Annuity
A pension annuity gives you a taxable guaranteed income for life (or specified period), similar to how you’d receive a regular salary from your job.
An annuity can currently be bought from the age of 55 onwards, at which point you’ll have the option to withdraw 25% of your pension as a tax-free lump sum.
How much you get from your annuity can depend on a range of factors such as your age, pension pot size, and whether you have any medical conditions.
Wealthify does not offer an annuity, however, so you would need to take this with another provider.
Pension Drawdown
If you want to keep your options open, then drawdown could be for you.
Drawdown is when you gradually withdraw money from your pension to give you a regular retirement income. It also offers flexibility over the frequency and amount of income you take or actively manage in your invested pension savings.
You’ll need to consider your attitude to risk if you choose to drawdown your pension, as your invested money can go down and up. If you want a risk-free, guaranteed income for life that’s low maintenance, then drawdown may not be for you.
How Wealthify can help you
Whether you want to open a personal pension or consolidate previous ones with a single provider, Wealthify can help.
With our award-winning platform, you can save for retirement in just a few taps.
All you have to do is choose your investment amount and style, then we do everything else for you — including building and managing your Pension Plan.
Also, every time you make personal contributions, you can choose to have Wealthify automatically add the government’s 25% top-up to your pot and invest it for you!
Your tax treatment will depend on your individual circumstances and it may be subject to change in the future.
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
References:
[1] ONS - Saving for retirement in Great Britain
[2] ONS - National life tables – life expectancy in the UK
