A FINANCIAL ROADMAP FOR EARLY RETIREMENT

Nicola Haughney-Carr - Senior Investment Director at Rathbones

Dreaming of early retirement and planning for it are two very different things. Nicola Haughney-Carr, explores some of the key elements of planning properly for your retirement.

Retirement used to be reassuringly predictable. On your 65th birthday, you would switch overnight from full-time employment to having more time on your hands than you knew what to do with, perhaps with a gold watch and bottle of bubbly.

Today, everything is different. The traditional idea of an absolute finish line to our working lives is no longer the default. Most of us can decide when, how, and even if we retire. For many, the dream is early retirement. However, with life expectancies in the UK growing longer and the cost of living growing ever higher, the obvious obstacle is whether you’ll have enough money to keep you going for 30, 40 or even 50 years. As local wealth experts at Rathbones, we help clients to navigate life’s journey, unlock more opportunities, and achieve financial freedom faster. When we discuss having enough money to retire with, here are some of the topics we broach.

Understanding how much income you’ll need

Many of us have no clear plan for the lifestyle we want from our retirement, and even more of us underestimate how much money we’ll need to pay for it. Everyone’s situation is unique, so calculating that necessary income requires a bespoke approach.

The Financial Conduct Authority estimates that there are more than 18 million people in Britain with significant savings and investments who have never taken professional financial advice. Without it, you risk miscalculating and retiring without enough funds.

Making your money work hard enough

Unless you’re a very high earner or receive a windfall, amassing enough cash to quit work and follow your dreams decades before your peers isn’t easy. Even a frugal lifestyle and extreme levels of saving are no guarantee that you’ll reach the level of wealth required.

We believe, to retire early, you will need expert advice to ensure your savings and investments are working as hard as possible for you. Research from the International Longevity Centre in 2019 shows that Brits who took professional advice for five years between 2001 and 2006 enjoyed an average increase in their assets of nearly £48,000 after 10 years, compared to those who took no advice.

Choosing the right time to retire

Those who are lucky enough to retire at the top of a strong market are likely to have sufficient funds to help them weather any future downturns. But, if you retire during a period of stock market volatility, this can change both the reality of your investment returns and your degree of comfort and peace of mind.

In the current economic climate – higher interest rates, increased inflation, and geopolitical uncertainty – making the decision to retire can feel risky. Retirement is a long-term decision and not one that should be unnecessarily influenced by shortterm investment challenges.

The current climate

Building on the previous point, it is worth considering the Chancellor’s “Spring Statement”, specifically termed as such to avoid further associations with tax rises. The large cuts to welfare spending and increase in defence spending had been well signposted, but the overall picture remains relatively downbeat, at least in the short term.

Lower economic growth in the UK can be blamed on the threat posed by global tariff wars, but the £24 billion increase in employers’ national insurance contributions, which comes into force in April, is more likely the cause. The reaction in the gilt market to the statement has been muted, but a short term rise in inflation, once last October’s tax rises come into play in full, may imply the Bank of England has limited room for significant rate cuts.

The UK’s cost of borrowing remains high compared to Germany, for example, and overall headroom against the Chancellor’s self-imposed fiscal rules, means the threat of further tax rises cannot be ruled out. Subjecting UK pensions and farms, over a value of £2 million, to inheritance tax remain firmly on the agenda and cannot be ignored. Changes in our society can create ripples within one’s investments and it is always worth keeping an eye out for them, to pivot when necessary – this is where wealth management could be integral.

A bespoke approach to your retirement plan

As you can see, there are many questions and situations to consider when it comes to retiring early and the first step should be taking professional advice from trusted, local experts. With the right planning, it is possible to enjoy a comfortable, well-timed early retirement. We would be happy to support you on this journey and help you reach your goals.

The value of investments and the income from them may go down as well as up and you may not get back what you originally invested.