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How to retire at 55

Thursday, 14 May 2015 08:00

Have you ever thought “if only I could stop working”, but how could you afford it? The answer will be dependent on your pension and how well it has performed. Here we look at ways to get your pension into shape

1. Use your share of the £35 billion the taxman gives pension savers

When you put money in a personal pension the taxman also contributes. Imagine you pay in £1,000. The taxman automatically adds another £250, so your pension pot receives £1,250.

If you pay 40% or 45% rate tax, as a higher rate taxpayer you get even more.

You can claim back money through your tax return which means the £1,250 from the example above, could cost you as little as £687.50 or 55%.

The amount you get from the taxman depends on your circumstances and tax rules can and do change. So take advantage whilst it is still on offer.

2. Start a pension

It is thought that as many as four in ten British adults don’t have a pension, including 1.4 million who are within 10 years of retiring.

If you wish to retire at 65 on 65% of your salary, the rule of thumb is like this; so the calculation is like this, divide your age when you start your pension savings by two and contribute this as a percentage of your earnings. For example, if you’re 25 you should aim to save 12.5% of earnings. Obviously to retire at 55 you’ll need to save more, but the sooner you start, the less it should cost you to build a substantial pension.

3. If your employer offers you a pension at work, take it!

Some companies, especially the large ones, usually offer workplace pensions. In many cases, they pay money into your pension due to auto-enrolment which came into effect in 2012. Over the coming years all UK companies, will have to offer a pension to their employees. If you opt out, you could be missing out on ‘free money’ from your employer.

4. Check where your pension is invested

Half of the UK population have no idea where their pension fund is invested, but it is important to know because you could be missing good returns if you didn’t. Not all investments are the same and the difference could have a significant impact on your pension. That said, all investments go up and down so you may end up with less than you invested, but keeping a keen eye on it lessens risks on returns

5. Make small, regular increases

Take a person aged 30 contributing £150 net to his pension every month. If every year that person increases that amount by 5% or £7.50 a month for the first year, at age 65 he could find himself with an extra £190,642 in his pension, assuming basic tax relief and that the fund grows 4% a year after charges.

Never mind takeaways: this should pay for quite a few fine dining meals!

Meaning a little increase can go a long way in the future. however, this example is only based on today’s terms and doesn’t consider inflation which would reduce real values over time.

6. Trace old pensions

Most people have around 10 jobs during their working life and many forget or don’t keep track of all the pension schemes they have joined during their career.

If you recall joining more than one pension but don’t have the details to hand, you can trace them for free with the Pension Tracing Service.

7. Approaching retirement?

Retirement rules are changing as of April 2015. If you are 55 or over, you will have a lot more freedom and flexibility on how you can draw your private pensions. You can take lump sums (single or periodical), income (secure or flexible), or a combination, you can even take your whole pension fund as cash in one go.

However, remember the first 25% you withdraw is usually tax free, and the rest will be taxed as income.

Choosing how to draw your pension is one of the most important financial decisions you will have to make. Remember you may need it for 20, 30 or even 40 years. So ensure you find out about the new rules and opportunities available.

8. Don’t delay on your pension

It is thought that as many as 3.5 million people have no plans to stop working at all, many because they have no monetary support structure in place, but wishing they had.

What you do today could make all the difference for your future and relaxing at 55 sounds better than working hard well into your later years!

Retirement rules are changing as of April 2015. If you are 55 or over, you will have a lot more freedom and flexibility on how you can draw your private pensions

The value of pension and the income they produce can fall as well as rise. You may get back less than you invested.

For advice contact me on 01896 757734 or email This email address is being protected from spambots. You need JavaScript enabled to view it. - Fraser Brydon - Money Matters