No one wants to work until their late 60s. Yet with the State Pension age slowly increasing (it will reach 67 by 2028), many people in the UK will have no choice but to work until that age.
However, if you plan ahead and make a few smart moves now, you could give yourself a chance of retiring far earlier than your late 60s. With that in mind, here’s a look at three simple retirement planning moves that could help you retire early.
Bring together all your pensions
One of the smartest things you can do when it comes to retirement planning is to consolidate your pension accounts. Many people today have multiple pensions set up which makes the process of planning for retirement far more challenging. When you have multiple pension pots, it’s hard to keep track of them all. It’s also hard to determine how your money is invested.
By bringing together all your pensions into one account (opening a Self-Invested Personal Pension or SIPP is one way to do this), you’ll have a much better idea of how much money you actually have. You’ll also have a better understanding of how much money you still need to save to be able to retire.
There are some situations in which pension consolidation isn’t the best move such as if you’re a member of a final salary pension. However, in general, bringing together your old pension accounts is a smart idea when it comes to planning for retirement.
Choose the right assets
Once your pension accounts are consolidated and you know how much money you have saved for retirement, the next step is to choose assets for your portfolio. The exact mix of assets you choose is known as your asset allocation.
Your asset allocation will have a big impact on the growth of your pension so it’s important to get it right. For example, invest too much in low-risk investments and you’ll struggle to grow your wealth. At the same time, invest too much in stocks and your retirement could be at risk if global stock markets collapse. You need to choose an asset allocation that is suited to your personal situation and risk tolerance. If you’re unsure about what asset allocation to go for, it could be a sensible idea to speak to a financial adviser.
Pick up bonus pension contributions
Finally, if your goal is to retire early, you’ll probably want to take advantage of tax relief. This is essentially bonus money that the UK government is handing out to those who save into their pensions. Unfortunately, a lot of people don’t even know this exists.
Basic-rate taxpayers are entitled to 20% tax relief (higher-rate taxpayers are entitled to more), which means that if you contribute £800 into your pension, the government will add in £200 for you, taking your total contribution to £1,000.
Tax relief is a great deal and if you save into your pension on a regular basis, the bonus contributions from the government could make a big difference to your wealth over time. Ultimately, turbo-charging your pension pot in this way could enable you to retire far earlier than those waiting until State Pension age to retire.
