How can I retire at 40/50/60?

Introduction

Early retirement is a growing goal amongst medics, but achieving it requires understanding of your NHS Pension, your financial needs, and how to bridge the gap between stopping work and drawing your pension.

If you’re dreaming of winding down from work early, you might be wondering when you can make it a reality. In this guide, we share what you need to consider and how much money you’ll need if you’re thinking of retiring at 60, 50 or even 40.

Accessing your NHS Pension

If you’re part of the NHS Pension Scheme, it’s likely that your NHS pension will form the majority of your retirement income. One of the most important things to consider when you’re thinking of retiring early is when you can access your NHS pension and your State Pension.

You may be able to take your NHS Pension as early as 55* (changing for some to 57 in April 2028) but taking it early will reduce your annual income permanently. This is because you’ll have your pension income paid for longer. The reduction depends on how many years before your Normal Pension Age you take it.

* If you’ve been an active member of the 1995 scheme since pre-April 2006 (and have had no breaks in service) your pension age could be 50.

You can find out your Normal Pension Age in our early retirement guide. Your age will depend on the scheme you’re in, but it will likely be either 60, 65 or linked to the State Pension age. 

One of the most important things to consider when you want to retire before you can access your pension, is how much money you will need to bridge that gap in time, known as the pension gap. 

You’ll also need to consider that retiring early will mean you won’t be contributing for as long into your pension, leaving you with less in your pot when you come to retire – unless you increase your monthly contributions. 

How do I work out my pension gap amount?

If you’re looking to work out how much money you might need to fund your retirement as a whole, we have a full guide to help you out.

Here we’ll specifically focus on the kind of pension gap you might be looking at if you choose to retire at 40, 50 and 60 years old.

Your pension gap amount will depend on how much you need to live on each year in retirement. You should consider your needs (like bills and day-to-day expenses) and your wants (your retirement plans and lifestyle requirements). The less expenses required, the sooner you may be able to retire. 

Once you have an annual income figure in mind, you’ll need to times it by however long you have from when you retire, to when your pension kicks in. Beyond that, you’ll also need to consider if you need to supplement your pension with any additional income, but for now we’ll just focus on those in-between years. 

If we use some figures from the Retirement Living Standards as an example, they propose an annual figure of £31,700. This is enough for a ‘moderate’ lifestyle, covering your bills (assuming your mortgage is paid off) and a holiday or two each year. They calculate their figures using independent research on real retirees. 

The table below shows you how much you’d need to save to plug the pension gap using the £31,700 a year figure:

If you save into an ISA or investments account, you’ll likely need to save less than this. For example, if you’re benefitting from 4% growth year on year, you’d only need £500,533 to draw down gradually over 25 years while keeping your remaining money invested, assuming you’re retiring at 40 and taking your pension at 65). 

These nuances are why it’s important to get specialist financial advice tailored to your circumstances.

What else should I factor in?

If you’re used to a certain income or lifestyle, or you have dependents to provide for, you might want to increase this annual amount and make the same calculations to give you a more accurate result.

For example, if you have children, you may at some point pay for school or university fees. These are typically ongoing expenses and may extend to accommodation fees and extracurricular activities.

You’ll need to factor these in if you’re thinking of retiring early, as you may be paying these during your pension gap years. 

Another big consideration is your mortgage. While you need to think about saving up for your early retirement pot, you may also need to balance this with paying off your mortgage. You could choose to focus on your mortgage so you’re debt free at 45 or 50, but then you may not have any pension gap savings.

If you choose instead to invest for your retirement early, you could benefit from compound interest, potentially giving you more to live off in retirement. 

How you choose to balance your future finances will depend entirely on your personal goals.

Bear in mind the value of investments and any income can go down as well as up and you may get back less than you invest.

How can I bridge the gap? 

You might already have some alternative forms of income in place, like a private pension or savings.  

If you need to build up your retirement fund, you’ll need to work out what’s achievable. This will depend on your current income, your age, how much you’re willing to sacrifice and how long you have until you retire. 

If you’re a while off from retirement, you won’t need to save as aggressively. Ways to potentially build your retirement income include:

• Cash ISA (easy to access with tax-free interest, but your returns may be modest) 
• Stocks and shares ISAs (tax-free growth and withdrawals with a higher potential for growth, however your investments can fall as well as rise) 
• General investments accounts (no limits on what you can contribute but any gains and income are subject to capital gains and dividends taxes) 
• Commercial investments (as part of your exit strategy, you may want to consider investing your business cash)

If you don’t have that long until you retire, then you might need to boost your current income. This could be through taking on extra shifts, carrying out private work or finding an alternative income source outside of medicine. 

If you’re fortunate enough to have a secondary property, you may consider renting it out for an additional income boost. Of course, this comes with extra responsibilities you may not wish to add if you’re looking at winding down in the near future.

When to speak to an expert 

Just like your career path, your route to retirement will be unique to you. That’s why it’s always wise to speak to a financial expert.

At Wesleyan Financial Services, our Specialist Financial Advisers can help you with both your pension and retirement planning. If you have an ideal retirement date in mind, they’ll be able to let you know what’s achievable, considering your current income, savings and lifestyle. They’ll also be able to advise you on what you can do now to hopefully retire earlier in the future.

You can book an appointment to take the guesswork out of retirement planning. Advice charges may apply.