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Do you have enough to retire at 55?

It is the goal of many savers to retire earlier in life, with 55 being the age that most people choose as their goal.

However, it has become more and more challenging for savers to retire at this age for several reasons, including poorer pension performance, lower interest rates and longer mortgages.

If you hope to retire at 55 you will need to figure out how much you intend to spend during retirement.

Everyone’s ambitions for later life are different but generally speaking, it is advised that you have twenty times your expected expenses in savings and pensions, minus any income from other sources.

This could be a substantial pot, which is why it is highly recommended that you start saving and investing earlier in life to enjoy an early retirement.

How much do I need to retire at 55?

We are often asked this question but it often can’t easily be answered. First, you need to assess several things:

  • What do you want from retirement?
  • Do you intend to work part-time?
  • Do you own a business or shares?
  • Do you need to support your family?

The simple answer is that you need a pension pot or investments that provide a sufficient income to meet your ambitions and keep your lifestyle maintained.

You should first look at your current spending habits as a starting point:

  • What do you currently spend each month?
  • Will this change once you retire?
  • Are there any specific goals, like paying off a mortgage, funding a grandchild’s education or taking an around-the-world trip?

Create a basic list of needs, such as food, transport and bills, and a list of wants, like trips and travel or a new car.

If you struggle, a common calculation is to use the ’70 per cent rule’, which states that the average retiree requires 70 per cent of their normal working income.

Funding your retirement at 55

Once you know how much you need, you can work on building the investments and pension pot to meet your goals.

Most retirement funding will be split between, income and capital:

Income – This is the regular payments made to you from interest payments, dividends and state and private pensions. 

This income is likely to change throughout your retirement with different funds maturing at different times and the state pension not becoming available until later.

You need to understand where your income will come from at different stages of your retirement and top-up periods where you receive less.

Capital – This is the cash you hold in your bank accounts and the assets you own, such as a business or property.

Withdrawing capital from your estate, if they aren’t liquid assets like cash, can be challenging and lead to a tax bill.

You must put a plan in place that considers how you draw upon capital throughout your retirement in the most tax-efficient manner.

If you retire at 55 it is important that you carefully balance your income and capital so that you keep a sufficient pot of money aside to fund your full retirement.

Seek help

While retiring at 55 is a great goal to have, it takes years of careful planning, which is best started early in life. Seeking independent financial advice should help you to create a wealth plan that helps you meet your goals so that you can retire early and comfortably.