Retiring Early

Retiring Early: How to Make Sure Your Money Lasts

The idea of retiring early is a dream for many, but it’s also a big financial challenge. The one big question that can make anyone nervous: How can I make sure my money lasts for the long haul?

Don’t worry. Retiring early is possible if you put a plan in place. You don’t need to be an investment expert, but you do need to be strategic. Here are some simple ways to ensure your money stretches as far as it can, so you can enjoy your retirement without financial worries.

1. Creating a Plan

The first step is having a clear retirement plan. This isn’t about simply saving some money—it’s about figuring out exactly how much you’ll need to live comfortably.

Start by considering:

  • How much will you need? Calculate your monthly living expenses—mortgage, bills, food, transport, and any other essentials. Don’t forget to factor in bigger expenses like healthcare or home repairs.
  • When do you want to retire? The earlier you retire, the longer your savings will need to last, so be realistic about your target retirement age.
  • What lifestyle do you want? If you plan to travel or indulge in expensive hobbies, your budget will need to be larger.

Use online retirement calculators to estimate how much you need to save to reach your target. It may feel overwhelming but take it one step at a time and adjust as you go.

2. Build an Emergency Fund

Before you dive into investing, make sure you’ve got an emergency fund. This is money set aside for unexpected costs like car repairs, medical expenses, or home maintenance. Having an emergency fund means you won’t need to dip into your investments when life throws you unexpected expenses.

Aim for 3 to 6 months’ worth of living expenses in a savings account that’s easy to access.

3. Understand the 4% Rule

One popular guideline for retirement withdrawals is the 4% rule. The idea is that you can withdraw 4% of your nest egg each year, and it should last you for about 30 years.

For example, if you need £30,000 annually, you’d need roughly £750,000 saved (because £750,000 x 4% = £30,000).

However, if you’re retiring early, your savings might need to last much longer than 30 years. So, it’s a good idea to be more conservative—consider withdrawing only 3% or 3.5% per year. If you  have other income, for example state pension or investment income, then a higher rate could also be considered.

4. Plan for Healthcare Costs

While the UK’s NHS provides excellent healthcare, private medical care can still be costly, and NHS waiting times can be long. If you retire early, you may not be eligible for the State Pension until you’re 66, so plan for the years before that.

Consider private health insurance or put money aside for treatments and healthcare expenses that aren’t covered by the NHS. Planning for these costs ensures you won’t be caught off guard.

5. Diversify Your Investments

You don’t need to become a financial expert, but you do need to make your savings work for you. Diversification is key, spread your money across different types of investments to reduce risk and increase potential returns.

Consider:

  • Stocks: They can be volatile, but over time, they usually offer higher returns.
  • Bonds: These are lower-risk investments that provide steady, though smaller, returns.
  • Real Estate: If you’re up for it, buying property can provide rental income and capital gains.
  • ISAs (Individual Savings Accounts): You can invest up to £20,000 annually in an ISA, and any returns are tax-free.

If you’re new to investing, start with a low-cost index fund or target-date fund. These funds automatically adjust their risk profile over time, making them a simple way to grow your money while reducing the risk of a market downturn affecting your long-term goals.

6. Live Below Your Means

To retire early, you’ll need to save a significant amount of money, and the best way to do that is to live below your means. That doesn’t mean depriving yourself, but being mindful of unnecessary expenses. Small changes—like cooking at home more, reducing impulse purchases, or cutting down on subscriptions—can free up a lot more cash for saving and investing.

The more you save, the quicker you’ll reach your early retirement target.

7. Stay Flexible

Life isn’t predictable, and your financial needs or goals may change over time. Whether your investments underperform, or you face unexpected expenses, being flexible allows you to adapt your plan accordingly.

This might mean:

  • Delaying retirement for a few more years if you need to top up your savings.
  • Adjusting your withdrawal rate (e.g., withdrawing only 3.5% instead of 4%).
  • Scaling back on travel or luxury spending to make your savings last longer.

8. Factor in Inflation

Inflation erodes the value of money over time, meaning your costs will likely rise even if your income stays the same. To combat this, make sure your investments outpace inflation—stocks and real estate are usually good choices for this.

Keep an eye on inflation rates and adjust your budget and investments as necessary to maintain your purchasing power.

Summary

Retiring early is a big goal, but it’s achievable with the right preparation. By creating a detailed plan, building a diversified investment portfolio, living within your means, you can ensure your money lasts as long as you need it to.

Remember, early retirement isn’t just about quitting work; it’s about gaining the freedom to live life on your own terms. With careful planning and a bit of discipline, you can make that dream a reality.

Are you planning for early retirement or need to discuss your retirement plans, please contact us to see how we can help?

 

 

 

The value of units can fall as well as rise, and you may not get back all of your original investment.

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Approved by In Partnership FRN 190859 February 2025.