Can I Retire Early?

What does "retiring early" actually mean?

There isn't one official early-retirement age.

For somebody who always expected to work until 67, retiring at 62 might feel early. For somebody whose original plan was 60, retiring at 55 might be early.

So rather than defining early retirement by a particular birthday, I would define it as: stopping or substantially reducing paid work earlier than your original financial plan assumed.

That's important because the financial impact depends on how many earning years you're giving up.

Steve's observation

People often talk about early retirement as though it's one decision: "Can I stop working at 60?"

But financially, you're making two decisions at once. You're deciding when your salary stops and when your retirement money starts doing the heavy lifting.

Moving both of those dates can have a much bigger effect than people expect.

The first question: what will early retirement cost?

You need to know what your retirement lifestyle will actually cost.

Don't begin with the pension balance. Begin with expenditure. How much will you need for:

• housing;
• food;
• utilities;
• transport;
• holidays;
• hobbies;
• family;
• insurance;
• home maintenance;
• emergencies;
• and everything else that makes retirement worth having?

We've already built this in ODW-RP-005 — How Much Income Will I Need in Retirement?

If you don't know that number, it's very difficult to judge whether early retirement is affordable.

Early retirement means funding more years

Suppose two people both live until age 90. One retires at 67. The other retires at 57.

The first potentially funds 23 years of retirement. The second potentially funds 33 years. That's an extra decade of spending.

And it's not just ten more years that the pension has to last. The person retiring at 57 may also have lost ten years of:

• salary;
• employee pension contributions;
• employer pension contributions;
• potential investment growth before withdrawals begin.

And it's not just ten more years that the pension has to last. The person retiring at 57 may also have lost ten years of salary, employee pension contributions, employer pension contributions and potential investment growth before withdrawals begin.

If you want to understand the longevity side more fully, see ODW-RP-008 — How Long Will My Pension Need to Last?

You may lose more than your salary

Leaving work early doesn't only mean losing take-home pay. You could also give up workplace benefits such as:

• employer pension contributions;
• bonuses;
• company car;
• private medical insurance;
• life assurance;
• income protection;
• subsidised benefits;
• share schemes.

MoneyHelper specifically highlights the need to consider lost workplace benefits when assessing early retirement.

That means the true financial cost of leaving employment can be greater than the salary figure alone.

What happens to my workplace pension if I retire early?

That depends on the type of pension.

Defined contribution pensions

With a defined contribution pension, your accumulated fund remains yours. But retiring early can affect it in several ways. You may:

• stop contributing sooner;
• lose employer contributions;
• have fewer years for the investments to potentially grow;
• begin withdrawals sooner;
• need the pension to fund a longer period.

A pension pot that looked perfectly comfortable for retirement at 67 may have a much bigger job if retirement begins at 57.

What about defined benefit pensions?

Defined benefit pensions work differently. Your scheme will usually have a normal pension age.

Some schemes permit benefits to start earlier, but taking them early can result in a lower pension because the income is expected to be paid for longer. The exact rules depend on the pension scheme.

So don't assume: "My DB pension says £20,000 a year, therefore I'll get £20,000 if I take it five years early." You need an early-retirement quotation from the scheme.

When can I access my private pension?

Most registered private pensions can currently normally be accessed from age 55, subject to scheme rules and exceptions.

The normal minimum pension age is scheduled to increase to 57 from 6 April 2028 for most people, although protected pension ages and certain other exceptions can apply.

If you're considering early retirement close to that change, check your own pension position rather than assuming that a general rule applies to every arrangement.

Our completed guide ODW-WP-015 — When Can I Take Money From My Workplace Pension? explains the access rules in more detail.

Access isn't the same as affordability

Being allowed to take pension benefits does not mean the pension is large enough to support retirement.

Imagine someone reaches 55 with £250,000 in pensions. That might sound substantial. But if they need £35,000 a year, have no other income for many years and potentially need the money to last into their 90s, the picture changes dramatically.

Pension access opens the account. It doesn't certify the retirement plan.

What about State Pension?

Your State Pension is separate. Your State Pension age depends on your date of birth and can be checked using the government's official service. GOV.UK also makes clear that State Pension age can differ from the age at which workplace or personal pensions are available.

If you retire early, you may therefore have a period when your salary has stopped but your State Pension has not started. That period has to be funded from somewhere else.

Don't build an early-retirement plan using State Pension income before the date you're actually entitled to receive it.

If you haven't checked your amount yet, see ODW-RP-006 — How Much State Pension Will I Get?

The retirement-income gap usually gets bigger

Suppose your household needs £36,000 a year. If you retire at 67 and State Pension plus another guaranteed pension provide £20,000, your private assets need to find roughly £16,000 before tax considerations.

But suppose you retire several years earlier and those guaranteed income sources haven't started yet. For that earlier period, private assets might need to provide most or all of the £36,000.

Same household. Same lifestyle. Very different demand on the pension.

This is why retirement timing matters so much.

Don't forget tax

Early retirement can also change your tax position. You might move from salary plus pension contributions to pension withdrawals plus investment income plus savings plus later State Pension.

Different sources can have different tax treatment. That doesn't mean there is one universally correct order in which to spend them.

In fact, blindly emptying whichever account is easiest to access can create unnecessary tax or damage future flexibility.

Tax planning therefore needs to form part of the overall decision.

What if I have ISAs and savings?

They can make early retirement more flexible. Cash, ISAs and other investments may potentially help support spending before other pensions begin.

But remember: having £100,000 of savings is not the same as having £100,000 of annual income. It's capital.

If you're going to use some of it to fund five early-retirement years, the balance remaining for later retirement will be lower. That needs to be reflected in the plan.

Could paying off the mortgage help me retire earlier?

Potentially. Reducing debt can reduce the annual income needed in retirement.

But don't automatically conclude: "I'll take a big chunk from my pension and clear the mortgage." The correct comparison might need to consider:

• tax;
• interest rates;
• remaining mortgage term;
• pension sustainability;
• investment risk;
• emergency cash;
• other retirement objectives.

The objective isn't simply to reach retirement debt-free. It's to arrive with a financially sustainable overall position.

What about retiring at 55?

For some people, that may be achievable. But retiring at 55 could create a retirement lasting 35 or 40 years. That means the plan potentially has to support:

• early active retirement;
• later retirement;
• inflation;
• market falls;
• unexpected expenditure;
• and potentially a very long life.

It also means State Pension could be many years away.

So the question isn't: "Can I access my pension at 55?" It's: "Can my overall resources support me from 55 onward?"

What about retiring at 60?

Age 60 can look very different. Perhaps:

• the mortgage has finished;
• pension contributions have continued for another five years;
• pension investments have had more time;
• State Pension is closer;
• a defined benefit pension may start;
• expenditure may be lower.

Those few years can materially change the numbers.

Again, this doesn't mean 60 is a "better" retirement age. It means comparing dates can be extremely useful.

Could part-time work be the answer?

Quite possibly. MoneyHelper highlights phased retirement as one option for people who don't want to stop work completely.

Imagine your retirement lifestyle costs £36,000. Part-time work provides £15,000. Now pensions and savings might only need to provide the remaining amount rather than replacing your entire salary. That could allow:

• fewer pension withdrawals;
• continued contributions in some circumstances;
• greater financial flexibility;
• a smoother transition from work.

And some people simply enjoy work more when it stops occupying five days a week.

What if I hate my job?

This is more important than it sounds. Sometimes the question isn't really: "Can I retire early?" It's: "I can't face doing this for another seven years. What are my options?"

Retirement may be one answer. But so might:

• changing employer;
• changing career;
• reducing hours;
• consulting;
• taking a lower-paid but more enjoyable job.

If earning some income for another few years significantly improves the retirement plan, changing the work may be easier financially than abandoning employment completely.

What if my health is the reason?

Health can fundamentally alter retirement decisions. There are also specific pension rules that can allow earlier access in certain ill-health circumstances.

MoneyHelper confirms that some people below the normal minimum pension age may be able to access pension benefits early because of ill health, subject to the rules and eligibility requirements.

However, ill-health retirement is specialist and scheme-specific. This guide should not be used to determine eligibility or what benefits an individual would receive.

What if the markets fall just after I retire?

This is one of the risks of retiring with investment-based pensions. Suppose you stop work. Your salary disappears. You begin drawing money from investments. Then markets fall significantly.

You may now be withdrawing from a smaller portfolio. That can place more pressure on the remaining assets.

This doesn't mean early retirement requires avoiding investments. It means the retirement plan should be tested against less favourable market conditions rather than assuming smooth investment growth every year.

Build an emergency reserve

An early-retirement plan that relies on every pound working perfectly leaves little room for real life.

Unexpected costs don't retire when you do. You may still get:

• boiler failures;
• car repairs;
• family emergencies;
• home maintenance;
• health-related expenses.

Having appropriate accessible reserves can help prevent every unexpected expense becoming a pension-withdrawal decision.

Should I take my pension as soon as I retire?

Not necessarily. Retiring from work and taking every pension benefit do not necessarily have to happen on the same day. Depending on your circumstances, you may have:

• cash;
• ISAs;
• different workplace pensions;
• defined benefit pensions;
• personal pensions;
• later State Pension.

The appropriate timing can have implications for tax, guarantees, investment risk, future income and flexibility.

That's why retirement should be planned across all assets rather than treating the largest pension as the only solution.

Early retirement needs more resilience, not just more money

You might reasonably think early retirement simply requires a bigger pension pot. That's only partly true.

A strong early-retirement plan also needs flexibility. What happens if:

• expenditure rises?
• inflation remains high?
• investments perform poorly?
• one partner dies?
• you live longer?
• you decide you want to spend more in the first ten years?

The earlier retirement begins, the more time there is for circumstances to change. Planning flexibility becomes very important.

The emotional side matters too

Money isn't the only issue. Some people can't wait to retire. Others discover six months later that they miss routine, colleagues, purpose, challenge and structure. Others discover six months later that they miss:

• routine;
• colleagues;
• purpose;
• challenge;
• structure.

Early retirement gives you more time. The next question is: what are you retiring to?

Nothing wrong with sitting in the garden — but ideally it should be because that's what you genuinely want to do.

Steve's observation

I don't think the goal should be: "Retire as early as humanly possible."

Nor should it automatically be: "Work until you've accumulated the biggest pension imaginable."

The interesting point is somewhere in the middle.

It's the age where the extra financial benefit of another year at work is no longer worth as much to you as the year of freedom you're giving up.

That's personal. But at least we can put numbers around the choice.

The early-retirement checklist

Before making the decision, I would want to know:

What Should I Do Next?

Choose your ideal early-retirement date. Then compare it with two years later and your original retirement date.

For each date, calculate expected expenditure, available income, pension values, contributions lost or gained, years until State Pension, other guaranteed income and how long private assets may need to last.

Then compare what another year or two of work actually buys you.

The aim isn't to prove that you should retire early. It's to find out whether you genuinely have the choice.