How to Retire Early: Is Taking Early Retirement an Option for You?

The chance to retire early will appeal to most, but early retirement is not to be entered into lightly. Having a guaranteed income and enough funds in reserve are the obvious foundations for retiring early, but there is much more to think about before you give up work.

Tim Leonard Published on 07 September 2021. Last updated on 08 September 2021.
How to Retire Early: Is Taking Early Retirement an Option for You?

For many people, early retirement is the dream scenario. All the time you spend at work could be spent with your family and friends, and on your hobbies and interests.

Can you retire early, should you retire early, and what does taking early retirement involve? Read on to find out more.

What is early retirement?

Early retirement can mean different things to different people. Some may consider giving up work a year or two before reaching state pension age as having retired early. For others, early retirement will mean work takes a backseat long before they reach their 60s.

Neither is right or wrong, and you don’t necessarily need to give up work entirely to retire early either. Some may take a phased retirement, by reducing their hours or taking a part-time job, for instance. But if you do retire early, it’s likely that working will be something you choose to do rather than have to do.

Can I retire early?

The key to retiring early is being able to afford it. Your finances need to be in good enough shape to support you for the rest of your life should you never work again.

This is often called being ‘financially independent’, and means you are confident that your future expected income and current savings – whether in the form of savings, pensions or investments – are sufficient to cover everything you’ll need to pay for going forward.

» MORE: What to know and consider about pensions

Achieving financial independence to retire early

Financial independence isn’t just for the super-wealthy, but it does mean having enough money to live on comfortably without working.

As a result, to be in a position to retire early, you will usually have:

  • paid off all or most of your mortgage
  • little or no outstanding debt on credit cards or loans
  • a guaranteed income, usually through a pension, to cover everyday living expenses
  • an emergency savings fund to cover any unexpected bills
  • other savings and investments to spend during your retirement

Early retirement planning tips

Most people will strive to reach these goals over the course of their working lifetime, so doing so in a shorter period can be difficult.

A great deal of effort, discipline and sacrifice is generally needed to stand a chance of retiring early, but as the rise of initiatives such as the Financial Independence, Retire Early (FIRE) movement show, there is no shortage of people willing to give it their best shot.

FIRE suggests a number of approaches to try to achieve your early retirement goals, but some general tips to consider include:

Paying off your mortgage

A mortgage is probably the biggest financial commitment you will make, so paying it off early can make a huge difference financially.

Overpaying on a mortgage won’t be the right choice for everyone, and early repayment charges must be considered too. However, clear your mortgage ahead of time and suddenly your monthly outgoings will be much smaller, and your disposable income much bigger.

» MORE: How to pay off your mortgage early

Clearing your debts

Paying off loans and credit cards should be a priority even if you don’t have your eye on retiring early. Making sure you pay at least the minimum required each month is key to avoiding penalty fees and harm to your credit score. Paying back more will help you get out of debt faster.

A balance transfer card can also be used to switch existing credit card debt and give you a period of time to try to clear what you owe without accumulating more interest.

» COMPARE: 0% balance transfer credit cards

Build your savings and investments

Making sure you have easily accessible funds to cover unexpected expenses is essential if you want to retire early. You’ll also need other savings and investments to pay for the hobbies and holidays that retirement should allow you to enjoy.

Your savings will hopefully deliver an income too – although with interest rates either at or near to record lows, this can prove challenging. Investing has the potential to deliver greater returns, but the associated risk that you could lose money must always be considered.

» MORE: Beginners guide to investing

Your pensions and taking early retirement

When it comes to retirement planning, people often rely on their pensions to provide an income.

If you are eligible for the state pension, you can opt to start receiving payments once you reach state pension age. However, if you want to retire early, the benefits provided by private pensions, such as personal pensions and workplace pensions, are usually more important. This is because they can often be taken earlier than the state pension.

It is a good idea to open a pension sooner rather than later if you don’t already pay into one and can afford to do so. A personal pension is a good option if you are not eligible for a workplace pension or if you are self-employed.

» COMPARE: Personal pension providers

If you want more control and flexibility over your pension savings a SIPP, or self-invested personal pension, may be worth considering.

» COMPARE: SIPPs providers

Check your early retirement pension options

Generally, you will need to contribute to a pension over a number of years for it to deliver a meaningful level of retirement benefits. Your annual pension statements will give you an idea as to the level of income you may receive when you retire.

If your expected income is likely to fall short of where it needs to be to retire early, you may want to increase your pension contributions. However, you’ll need to consider your overall financial situation as well as the annual limits on pension contributions.

» MORE: Learn about pension contributions

When planning to retire early, you should also consider that the income your pension has the potential to deliver is likely to be less generous than if you had continued working and contributing to your pension.

Also, you would forgo the opportunity to accumulate more years of employer contributions and pension tax relief.

What age can you take early retirement?

If you have the necessary finances in place and can afford to retire, there is nothing to stop you from giving up work whenever you want. However, given the significant role that pensions generally play in providing retirement income, most people will need to wait until they can access at least one of their pensions before stopping work.

Most defined contribution pensions – whether set up by you or provided by your work – can be accessed from the age of 55. However, be aware that this age is rising to 57 from 2028.

A defined benefit, or final salary pension, works differently and typically has a ‘normal retirement age’ that must be reached before benefits can be taken. For many people this age will be 60 or 65, but it can vary between schemes, and even between members of the same scheme if they joined at different times.

Whatever type of pension you have, it’s best to check with your pension provider the exact age that you can begin taking benefits.

» MORE: Rules for withdrawing your pension

Taking early retirement due to ill health

If you need to give up work for health reasons, you may be able to access your defined contribution pension before the age of 55. The usual retirement options – a 25% tax-free cash lump sum, purchasing an annuity, entering drawdown, or choosing more than one option – should be available.

» MORE: Consider your pension benefit options

For defined benefit schemes, ill health may mean you can start taking payments before the age at which you normally could.

For both types of pension scheme, it might be possible to take your entire pension as a lump sum should you have a life expectancy of less than a year. If you are under the age of 75 and your lifetime allowance allows, the lump sum will be tax-free. If you receive the lump sum after the age of 75, it will be taxed as income.

The rules surrounding taking early retirement due to ill health can differ between schemes, so you’ll need to talk to your provider about your options.

The state pension and early retirement

The earliest age anyone can collect their state pension at present is 66 but will rise to 67 by 2028, and eventually 68. As a result, if you’re planning an early retirement you won’t be able to rely on your state pension to help fund it straight away.

This doesn’t mean the proceeds you will receive from your state pension should be discarded from your early retirement calculations entirely. For example, if you intend to use savings to support your income but expect these funds to run out in a few years’ time, you can factor your state pension into your workings for when you reach the correct age.

You can get an idea of what your state pension might pay by requesting a pension forecast.

What is a phased retirement?

A phased retirement can be a good halfway house between working and retirement. This involves easing yourself out of full-time work by cutting back your hours or days worked rather than stopping altogether.

If you have a number of pensions, you could start drawing benefits from one to counter any reduction in salary, leaving the others untouched until you need them. A phased retirement is a more cautious approach toward eventually giving up work altogether, and can provide a gentler insight into how your finances might fare in full retirement.

Should you retire early?

The risk of running out of money should be the overriding concern of anyone contemplating early retirement. Working out if your anticipated retirement income will be enough to cover your outgoings is a must. However, with your retirement hopefully enduring for an open-ended period of time, making such calculations isn’t always easy.

If there is even the smallest chance your finances are not where they need to be, it is unlikely to be the right time to retire early. Factoring in a potential return to work some years into the future to cover a known shortfall is not a reliable plan either – things can change quickly and unexpectedly, both personally and in the job market.

Taking early retirement doesn’t mean you can’t work, but what you do earn post-retirement shouldn’t be essential to sustaining your income.

The pros of early retirement

Taking early retirement offers advantages in that:

  • You can spend more time with loved ones, travelling or on new hobbies.
  • It could help you better manage health problems.
  • You could leave a job that you don’t enjoy.
  • It can sharpen your focus on better managing your finances.

The cons of early retirement

The potential downsides to an early retirement include:

  • The risk that your income and savings won’t be enough to see you through retirement.
  • Lower pension benefits than if you continued working and building up your pension for longer.
  • You will need to wait to collect your state pension.
  • You might lose benefits from work, such as company health insurance.
  • You could miss the social aspect of going to work and interacting with others.

Taking early retirement is a huge decision and one you need to get right. If you’re in any way unsure, talking to a financial expert is always a good idea.

» MORE: How to get pension advice


WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in.

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About the author:

Tim draws on 20 years’ experience at Virgin Money, Moneyfacts and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more

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