Could You Retire Early?

Written by Karen Bryan

beachDo you dream of escaping work and retiring early?  The definition of retirement seems to be changing, at least in some personal finance blogs, with the authors’ retirement goals being to work 2 or 3 days a week. To me, that’s working part-time, not being retired. To me, being retired means not doing any paid work.

Is it really possible to retire (give up work altogether) early with the decent income on which to live?

My husband retired aged 51 in 2008. This was only possible because he was a member of a final salary pension scheme into which he’d paid standard plus additional voluntary payments and his employer contributed 6.85% of his salary. With the demise of many final salary pension schemes and their replacement by stock market based schemes such as the National Employment Savings Trust (NEST), into which employers only have to contribute a measly 3% of your earnings to your pension pot, early retirement on a decent occupational pension is looking less likely.

I don’t have the option to retire early, as I’ve been a freelance worker for decades. I can’t see my stakeholder personal pension, which I can release from the age of 55, giving me a pension of more than a few thousand pounds a year. Therefore, I need to keep working, at least part-time, until I start drawing my state pension when I’m 66.

One of the ways to save in order to fund an early retirement is through share trading. That is only if you manage to time it well and buy when share prices are low and sell when share prices are high. It also depends on how much cash you have left after covering your living expenses and your attitude to risk. However, there’s no guarantee that you will make money consistently to build up a retirement fund. You might also lose all your money.

Paying off your mortgage early is also another route to aid an early exit from work. You’ll need a lot less income on which to live if you don’t have housing costs.  It will also save you a small fortune in mortgage interest payments.

You could buy property to become a landlord, then the rent you charge could be part of your retirement income. I’m not quite sure if this is really being retired, as unless you are willing to pay out fees for everything such as letting agents, all repairs and maintenance, then there will be some work involved. Plus you may not be able to guarantee 100% occupancy and could have troublesome tenants. It would also be tricky if property prices take a dive and, for some reason, you needed to sell.

Unless you are in a highly paid job which offers a good pension scheme and/or do well in the stock market or in property deals, I don’t think that retiring early is an option; aspiring to work part-time is a lot more attainable than retiring early (but please don’t confuse the issue by calling working part-time being retired).