How can I retire earlier than planned?

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We get it: everyone’s different. Some people want to stay in work for as long as they can. But others like the sound of leaving their day job sooner. So we’ve crunched some numbers to show how someone could put themselves on track for an earlier retirement.

What steps could I take to retire earlier than planned?

If you’re looking to wave goodbye to the workforce a few years early, you’ll probably need to consider saving a little more over the longer term. Why? Well, you’ll need your money to last you longer. 

There are different ways people can save for life after work. And we know lots of people make use of a pension plan – so let’s dive a little deeper into that.

Let’s say you have a defined contribution pension plan. This type of plan is one that you can set up yourself and pay in to. Alternatively, you might be given one of these by your employer when you start a new job, in which case they'll usually pay in too. 

Imagine you start working at 22 years old and have a yearly salary of £25,000. And let’s say you pay in 5% of your monthly earnings into your plan each month, while your employer puts in 3%.* We’ve estimated that you could have £192,000 in your pension plan if you retire at age 66.**

But what if you were to put in 7% instead of 5% over your career? That 2% extra could see you with £212,000 at just 63. That means you could have £20,000 more, three years earlier than you otherwise would have. 

You can usually start taking money from your pension plan from age 55 (rising to age 57 from 6 April 2028). And you can start claiming the State Pension from 66, rising to 67 by 2028.

A pension plan might not be at the top of your list of priorities, especially if retirement still feels like a long way off. But as you can see, making a small adjustment over the long term can benefit you. Just keep in mind that a pension is an investment. Its value can go down as well as up and may be worth less than was paid in.

What kinds of things do I need to be aware of?

We understand not everyone will be in a position to pay more into a pension plan, but keep in mind people are generally living longer these days. Depending on the amount you have and how early you want to retire, you may need to be extra careful with your finances so that your money doesn’t run out too quickly.

Keep in mind the calculations we gave you earlier in this article are just illustrations. How much you need to have in your pension plan depends on your own circumstances. For example, it’s important to think about whether you’ll have money from other sources. 

The kind of lifestyle you want in retirement will also affect how much money you need. To get an idea of how much you could potentially need, you can read How much do I need to retire?

If you’re feeling unsure, it could be worth getting financial advice from a financial adviser.

Could I retire more gradually instead?

Some people decide to gradually retire, rather than simply stopping work altogether. This might mean that you ask to cut down on your hours. 

A gradual approach to retirement means that you’re still earning money from work, but you could still take some money from your pension plan if you wanted to top up your salary.

Money left in your pension plan stays invested, so anything you don’t touch has the opportunity to grow over time, although remember this can’t be guaranteed. 

Remember, if you’ve started taking more than just your tax-free money from a pension plan but you’re continuing to pay in, you can trigger something called the Money Purchase Annual Allowance. This reduces the amount you can pay in across all your pension plans before you could face a tax charge. To learn more, you can read our article.

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*If your employer set up your defined contribution pension plan, they usually need to pay in a minimum of 3% of your ‘qualifying earnings’, while you normally pay a minimum of 5%. Your ‘qualifying earnings’ are a portion of your total earnings. But some employers will base the minimums on a different amount of your earnings. In our calculations, we’ve assumed that you and your employer pay in a percentage of your total salary – which won’t always be the case.

**Our calculations assume that you achieve 5% a year investment growth on your pension savings and that your salary grows by 3.5% per year. The figures allow for 2% inflation and an Annual Management Charge of 0.75% is assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.

The information here is based on our understanding in October 2024 and shouldn’t be taken as financial advice.

A pension is an investment and its value can go down as well as up and may be worth less than was paid in.

Standard Life accepts no responsibility for information on external websites. These are provided for general information.