Set a target income
Retiring in your 50s can seem like a pipe dream, particularly with the high costs of living and restrictions on accessing your pension until the age of 55 – rising to 57 in 2028. However, with careful planning and consistent saving, you can increase your chances of an early escape from working life.
Start by working out how much income you will need in retirement. According to the Pensions and Lifetime Savings Association, a single person now needs about £31,700 a year for a moderate lifestyle, while a couple needs £43,900 between them. These figures cover the cost of running a car, an annual overseas holiday and an off-peak long weekend break in the UK. Early retirees often spend more at first, packing in travel and hobbies while they are still active.
One way to guarantee an income for a set period, or the rest of your life, is to buy something called an annuity. In exchange for a lump sum, you get regular payments, but how big these are depend on your health and your age, and if you buy one in your 50s, you will get less each year than if you wait until you are older.
According to the financial firm Hargreaves Lansdown, someone earning £26,000 a year and contributing the standard 8% (5% from their earnings and 3% from their employer) to their pension from age 22 to 68 could build a fund of about £235,000. This could generate an annuity income of about £16,000 a year in retirement on top of the state pension (now £11,973 a year).
If they stopped making contributions and bought an annuity at age 57, their fund might be closer to £143,000 – reducing their annual income to about £8,000 before the state pension.
To retire at 57 with a £16,000 income from a personal pension, they would probably need to contribute about 13% of their salary throughout their working life on top of the 3% employer contribution.
“Even for some very high earners, the pressures of mortgages, raising a family, supporting elderly parents and an elevated cost of living can make a retirement in the early 50s a tough ask,” says David Little of the wealth manager Evelyn Partners. “With improved life expectancies, that might mean a 40-year retirement or more.”
Start early and maximise tax breaks
Building up pension savings early is vital if you want to finish work in your 50s. Under current rules, you can pay up to £60,000 a year into a pension, or up to 100% of your annual earnings, whichever is lower, and still benefit from tax relief.
Even modest contributions snowball because every year’s gains are reinvested and start earning their own returns.
Check whether your employer will match any extra contributions you make or let you use salary sacrifice, as both will boost your pension savings.
Salary sacrifice boosts your pension because it reduces your gross salary, meaning you and your employer pay less in national insurance. Some employers pass their NI saving on to your pension, too, which can increase the total contribution.
One partner can boost another’s future income by making contributions for them. Up to £3,600 a year can go into a pension for a non‑earner and still receive basic‑rate relief. (You do not have to be married/civil partnered).
Because pensions are locked until at least age 55 (rising to 57 in 2028), many people planning for early retirement also save into an Isa. You can put up to £20,000 a year into an Isa and benefit from tax-free growth and withdrawals, giving you a ready‑made bridge between quitting work and tapping your pension.
Invest for growth, then protect
Historically, stocks and shares have typically produced much higher returns than cash. “£1,000 invested in a global tracker fund 20 years ago would have grown to more than £5,000 today,” says Dan Coatsworth, an investment analyst at the investment platform AJ Bell. “The same amount in a cash Isa earning an average rate over the same time period would be worth about £1,500.
“Global equity funds are popular with people in their 20s, 30s and 40s as they offer broad exposure. You can choose low-cost passive options like the Fidelity Index World fund, which tracks more than 1,300 companies across developed markets, including big names like Microsoft and Apple.”
The £5,000 figure mentioned is based on investments in a stocks and shares Isa, but the principle of long-term compounding applies to Isa and pension investments.
As you approach your target retirement age, Coatsworth recommends shifting strategy. “Once you’re within five years of retiring, think about how your pension will be structured. That could mean moving some of your pot into income-generating assets and potentially dialling down risk.”
Some pension providers will automatically gradually reduce investment risk as you get nearer to retirement through something known as “lifestyling”, but it is worth checking where your investments are held. Lifestyling usually starts anything between five and 15 years before retirement. However, your pension provider may need to be told your intended retirement age if it is earlier than the default age.
Cut costs and clear debts
Reducing your expenses can make retiring in your 50s more achievable. High-interest debts, particularly credit cards and loans, should be paid off as soon as possible.
Downsizing your home or relocating somewhere cheaper could free up equity and reduce your outgoings, and reviewing bills, insurance and subscriptions could also reveal some easy savings. Even small reductions in spending can reduce the sum you need to live on each year, helping your money last longer.
Bridge the gap to state pension
Retiring early means covering the years before the state pension kicks in. Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown, says: “The state pension age is on the way up – [it’s] currently 66 and due to hit 68 by the mid-2040s. Given the important role that the state pension plays in people’s retirement income, much more will need to be saved in the pension to bridge this gap.”
The state pension is now just under £12,000 a year. “If it increased by 2.5% per year over a period of 10 years, then that would be about £150,000 extra that would need to be saved into a pension to cover that period if you were looking to retire early,” Morrissey says.
You need 35 qualifying years of NI contributions to receive the full amount. Beware that gaps in your NI record to raise children or care for others can mean you fall short of the 35 years needed for the full state pension. This is a particular risk if you are aiming to retire early, as you will have fewer working years to make up the shortfall.
You can pay voluntary NI contributions to fill gaps in your record.
You can take up to 25% of your pension pot tax-free from age 55 (rising to 57 from 2028). This is often taken as a lump sum, but you can also take it in stages. The rest of your pension withdrawals will be taxed as income.
Some early retirees buy fixed-term annuities with part of their pension to provide a guaranteed income until state pension age – rates are more attractive now than in recent years.
Little warns against cashing in the 25% tax-free pension lump sum too early: “Taking it all at once in your 50s can deplete your pot quickly. Taking it in tranches makes it last longer.”
Track and adjust
Retirement plans don’t need to be set in stone. Stock markets fluctuate, living costs rise, and plans change. Reviewing your savings annually can help you spot problems early and make adjustments.
Most pension providers offer online tools to let you test different scenarios. If you are falling behind, you may need to boost your contributions. If your investments perform better than expected, you might gain extra flexibility.
“Early retirement is achievable, but it takes discipline and regular checks,” Morrissey says. “It’s worth setting a reminder to review your plans each year.”
