There is no longer a default retirement age in the UK and while you won’t get your state pension until age 66, there is nothing stopping you retiring earlier – as long as you can afford it.
Once you retire, you may not receive a regular salary but there will still be bills to pay and you will need money to enjoy your golden years.
According to the Pension and Lifetime Savings Association (PLSA), the average cost of a moderate retirement for a single person – that covers luxuries such as one foreign holiday a year and eating out a few times a month – is £31,300 annually.
To generate that sort of income from an annuity – a product that uses your pension to purchase a regular annual income for life – experts suggest retirees may require a pot of up to £615,000.
So what if you want to retire at 60?
An early retirement may sound like a dream but you will need to do it without the state pension if retiring at that age. This is because the state pension age is currently 66 and will rise to 67 by 2028 and to 68 by 2046 for most people.
You can still access your private pension savings though from age 55 as well as any other income such as investments or a buy-to-let portfolio.
Here is how much you would need to pay into your pension to retire by age 60.
Consider how much you need to retire
The amount you need in retirement will differ depending on what you are planning to spend your money on.
Ian Futcher, chartered financial planning consultant at wealth manager Quilter, said: “Crucially, retirement at 60 isn’t just about the numbers, it is also about your lifestyle.
“Many people are still active at 60 and want to spend time travelling, taking up new hobbies, or enjoying their freedom.
“These costs can be higher in the early years of retirement when you’re more likely to be out and about. This is why it’s often advisable to front-load some of your pension savings to allow for more spending in your 60s, before you settle into a more steady routine later on.”
Having an idea of how much you will need to retire can help determine how much you need to contribute.
Futcher adds: “Ultimately, the right amount to contribute to your pension will depend on your personal circumstances but aiming to replace at least 50-60 per cent of your working income is a reasonable rule of thumb.
“Seeking professional financial advice can help ensure you’re on track to retire comfortably and live the lifestyle you want.”
Start early
The earlier you start contributing to your pension, the more time you have to overcome volatility in the market and the more chance you have of reaching your target.
You can also begin with smaller sums if you start early enough.
Research by investment platform Hargreaves Lansdown suggests someone retiring age 60 would need a pot of around £615,000 to generate £31,500 of income through an annuity.
To achieve that they would need to save approximately £583 per month between the ages of 22 and 60, according to the research.
Its own HL Savings and Resilience Barometer suggests the cost of a moderate retirement is lower at £25,000 and the same person would need to save around £435 per month into their pension.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Retiring early may seem like the dream but if you want to make it happen you will need to make your pension work hard. The reality is that you are going to need to make real sacrifices to your spending power today if you are to finish work early.”
It gets a bit more tricky if you start later.
Analysis by Quilter suggests that to get a similar amount based on the PLSA standards, from age 35 you would require monthly contributions of £1,493, rising to £2,727 from age 45.
Futcher added: “Someone starting in their 20s might only need to put away 15-20 per cent of their salary, but if you’re starting in your 40s, that figure will be significantly higher. “Employer contributions, tax relief, and investment growth can all help ease the burden, but the key is to start as soon as possible and regularly review your plans.”
The risk of retiring early
The main challenge with retiring from age 60 is that you have almost another decade before receiving the state pension.
That is a time where you could have continued contributing to your pension to boost your retirement savings and benefit from further stock market growth.
Instead, Morrissey warns that retiring early and before reaching state pension age means your own pension provision needs to take the strain and you may miss out on investment gains.
Rather than taking an annuity, it is possible to stay invested through a product called drawdown and making regular withdrawals from your pot, but there is a risk of your money running out.
Futcher adds: “If you’re hoping to retire at 60, working out how much to pay into your pension requires some careful planning.
“The earlier you stop working, the longer your pension pot needs to last, and you’ll need to bridge the gap before the state pension kicks in.”
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
