10 Tips on How to Retire Early in the UK
Updated: May 21
Are you looking forward to retiring? While this seems like the dream of most workers, it’s far from the reality in many cases. Some people can’t retire early due to health problems or they are forced to keep working because they don’t have enough money saved up yet.
However, if you want to retire early in the UK, there are ways you can make it happen! Follow these tips on how to retire early in the UK and you’ll be well on your way!
1) Getting back to basics
If you want to retire early, your best bet is to eliminate your expenses by cutting out luxuries and small purchases.
Instead of splurging on fancy dinners out, save some cash by making your own meals at home. This will save you money and help you avoid impulse buys (as most major retailers are right next door).
Beyond being more frugal with your money, it can also be smart to rethink where you’re living. If possible, move somewhere that has cheaper rents and a lower cost of living.
As a bonus: You’ll likely have more free time because you won’t be spending so much time commuting!
2) Savings accounts versus stocks and shares
Before you start planning for retirement, it’s a good idea to establish your asset allocation—what percentage of your investment portfolio will be made up of stocks and bonds.
Stocks are more volatile than savings accounts and short-term investments, but they have historically delivered higher returns.
Choose your stock allocation based on an assessment of how much risk you’re willing to take with your money, but know that younger investors can afford to be more aggressive with their investments because they have more time to recover from any losses or major dips in value.
However, people approaching retirement need some growth potential so they don’t outlive their savings.
3) Investing isn’t gambling
Investing in stocks and shares is a very different prospect than placing bets at a casino.
If you’re trying to learn how to retire early, it’s important that you don’t treat investing as some form of speculation - rather, think of it as a long-term growth strategy.
The more patient and responsible an investor you are, ultimately, the more likely you are to secure your financial freedom and retire early.
(Notice we said secure – not guarantee!) Save while others spend: One of the reasons most people aren’t able to retire is because they aren't saving enough money every month.
4) The best returns on your money come from saving tax
Avoid paying tax on your income by putting money into a pension or ISA. The longer you save, and invest, before withdrawing your funds, they more money you can earn.
While state pensions provide an income at retirement, they’re not enough for many people – particularly as other costs like accommodation and fuel also increase with age.
An additional private pension fund makes sense, as long as you’re saving enough tax-efficiently to make it worthwhile.
5) Consider alternative investment opportunities
When it comes to building a portfolio, traditional means like stocks and bonds aren’t enough. Consider adding alternative investments as part of your portfolio: real estate, private equity, and various kinds of businesses.
If you have substantial capital that you’re comfortable risking (at least five years for real estate), look into angel investing or crowd funding. It’s also worth considering starting your own business.
In almost all cases, there are income tax and legal benefits associated with being self-employed; even if you end up losing money every year after expenses are accounted for, that loss may be tax deductible!
A little bit of research can save a lot of money down the road. And remember: diversification is key!
6) Inflation is your enemy but not if you invest it
Let’s say you are 25 years old and have £1,000 saved. You could invest it, but inflation is currently running at 3%, which means your £1,000 will be worth £700 in a year.
If you kept that cash safe under your mattress for 10 years then it would be worth just over £800 – a difference of less than 2%.
However, if you invested that money at 3% and let it sit for 10 years then by the time you were 35 it would be worth over £3,000.
And at retirement age (which tends to range from 60-65) its value would increase from £3,000 to over £15,000.
7) Save before you can spend, don’t spend because you can save
The hardest part of saving for retirement is that we want it all and we want it now. If you don’t have a pension, or other regular stream of income from your employment, you need to set up an emergency fund.
This ensures that if something comes up, you have money available without having to sell investments or getting into debt.
It’s also important not to withdraw from investments too early; make sure that these are properly diversified and low-cost index funds so that you can continue compounding for many years with small fees and no loss.
Remember, when it comes to retirement, patience is your friend.
8) Know what tax advantages are available
If you’re planning for retirement, having an adequate pension is crucial. However, if your employer has a contributory scheme, you could end up paying as much as £30,000 more when you retire—and that’s assuming a measly annual return of just 2 percent.
This is due to National Insurance Contributions (NIC). Instead of having to pay both employee and employer NIC for your pension, your employer will pick up most of it (known as Class 1) while only you will have to pay NIC.
Once you retire though, that changes and you must then pay Class 4 NIC instead.
9) Don’t make rash decisions based on emotions alone.
Investing your money can be a challenge, especially if you’re just starting out. That’s why it's important to take your time and don't make rash decisions based on emotions alone.
The fact is that most people do not invest, and most people do not retire early because they are scared of losing their money.
The truth is: if you invest well (and within a diversified portfolio), investing can actually help you grow your money while maintaining high returns year after year.
In other words, if you're smart about how you manage your assets, investing might not just help put more money in your pocket—it could also help with retirement planning.
10) Keep things simple. Most often simple is best.
Simple often works best when it comes to planning your finances. Start by looking at your current situation.
Don’t try and predict what might happen a year or two down the line, that’s impossible – just look at what you have today and how much money you can safely withdraw from it each month.
Then, and only then, start planning for long-term goals like holidays or buying property.
If you overcomplicate things with unnecessary spending, taxes and so on, then before you know it your entire income is gone – and won’t be there when you really need it!
Make sure you keep things simple whenever possible: trust us, that way is always easier!