Hello everyone! Today I’m delighted to host a guest post from Good Nelly, who writes on debt and managing your finances at My Way of Viewing which I recommend you take a look at. Good Nelly has kindly recommended some topics below on planning for retirement and steps you can start to think about to help you retire early.
Remember, retirement planning is well worth thinking about long before you retire – elsewhere on the blog we’ve spoken about the magical effect compounding can have on your pensions if you get started early. The messages from Good Nelly below really match the Wilderness’s own sentiments on the topic.
6 Tips to retire early and enjoy life on your own terms
When you are thinking of retiring early, you need to consider two things, one is ‘retiring’ and the other one is ‘early’. The concept of retiring has changed. It doesn’t mean that you have to stop working. You can continue working but it will be as per your liking. You won’t have to work just to earn. Now comes the second part, that is, early. That you have to decide when you want to retire. Based on that you’ll have to plan your finances so that after that time, you don’t have to work for your living. You will have enough to sustain the rest of your life.
Here are 6 tips that can help you to plan your finances to retire early.
1. Plan how much you need at retirement
To plan how much you need at retirement, first, you have to plan how much you need to survive; that is, how much you need annually to lead your present lifestyle. First, calculate just the basic requirements.
Then, you have to consider other things. You have to keep in mind inflation and luxuries which you’ll want to enjoy after retirement.
However, certain things will not be there after retirement. Your debts will be paid off, your mortgage payments will be done, so you won’t have to take into account these things while calculating your needs.
2. Contribute to a retirement account
If your employer is providing one, contribute to an employer-sponsored retirement plan. If you don’t have access to such a plan, you can contribute to personal pension plans. You get tax relief on the payments you make. If you are a basic rate taxpayer, then per £100 you contribute, you get about £25 tax relief. And, if you fall into the higher tax bracket, then you can get additional £25 tax relief for every £100 tax relief you pay as tax.
When you retire, you can get 25% of your pension as a lump sum tax-free amount. The rest of the amount you get as a taxable income throughout your retirement.
You can also opt for a self-invested personal pension. If you opt for this plan, you can choose your investment option from bonds, shares, funds, business properties, etc. as per your choice.
3. Build an emergency fund with a sufficient amount
An emergency fund is a must to tackle your emergency expenses. Doing so, you won’t have to worry about money when there’s a sudden car repair or a repair at home.
The financial experts always stress on saving about 5-6 months of your living expenses into your emergency fund. So, even if you have an emergency fund but not sufficient amount in it, start to save the required pounds.
Do not use the funds unless it’s a real emergency. And, after using it, save the required amount as early as possible.
This way, you can avoid debt to some extent.
4. Plan your investments to retire early
Protect your money from CGT and income tax by holding your investments as well as savings in an ISA or Individual Savings Account. As long as you keep your pounds in an ISA, you won’t have to pay any tax or profits you make.
Also, banks often give lucrative offers to their new customers. Yes, loyalty pays but keep an eye on the new facilities offered by the banks. If required, you can negotiate with your existing bank or open an account with another bank that is offering better terms and conditions.
Another most important thing, have a diversified investment portfolio so that market ups and downs don’t affect your investments much.
5. Protect your wealth and save your hard-earned pounds
You can protect your savings by opting for the Financial Services Compensation Scheme. Through this, you get protection for the money in your savings account. It is upto £85,000 per person in an authorised bank.
Also, purchase life insurance or FIB (Family Income Benefit) along with home insurance, car insurance, health and dental insurance, and other insurance policies if you need them. Talk to an insurance adviser and purchase coverage as per your need and requirement.
6. Repay your debts as fast as possible
You have to get rid of your debts when you’re planning to retire early. When you are in debt, you have to pay interest, and it outstrips any interest on your savings account. So, pay off your debts as early as possible.
You should repay not only your unsecured debts like credit cards, personal loans, medical bills, etc. but also your secured loans such as your home loan as well. If there’s no prepayment penalty on your mortgage, try to repay your loan early. If you see that the current market rate is less than what you’re paying on your home loan, you can opt for a remortgage. Doing so, you take out a new loan at favourable terms and conditions, thereby reducing the loan term of your new home loan and saving money.
If you are not able to manage your debts on your own, look for a suitable debt relief option and solve your debt problems with professional help.
At last, I would like to mention that you should try to increase your income. It will help to attain your goals faster if you earn more and save more. You can invest more and have better returns in the future. So, look for some additional income opportunities. You can browse online to earn additional pounds during your leisure time.
Do all these things and motivate yourself to retire early and enjoy life on your own terms. All the best!
Thank you again to Good Nelly and remember to take a look at her site My Way of Viewing!
And if you are at that point of retirement, why not check out 30 low stress jobs you can do in retirement over at Don’t Work Another Day!
The Wilderness is also always open to hosting interesting content from other bloggers – just get in touch via our contact us page if you’d like to write for us.