“Is 55 too early to retire?” - plan for an early retirement like Lisa

Meet Lisa

• Lisa
• 22 years old
• Saving for retirement
• Rents a property in Greater Manchester
• Earns £32,000 per year

Lisa’s big question: “How much do I need to retire?”

When it comes to pension planning, Lisa has the same big question as anyone else, of any age, any salary and any circumstances.

How much will I need in my pension pot?

It’s a subject we’ve already covered when we asked how big your nest egg should be, but it’s worth sharing the industry-recognised figures again here.

A moderately comfortable retirement, one with an annual foreign holiday and the odd meal out, means your pension needs to deliver £31,300 to a single person, or £43,100 to support a couple.

To retire at 55 then, without relying on a partner to cover any of her costs, Lisa will need a large enough pension pot to give her a £31,300 per year income from her mid-fifties to her eighties or even later, she’ll need a pension pot of at least £500,000. Especially as for at least ten years of her retirement, she won’t be drawing a state pension.

That sounds like a lot. It is a lot. 

But it’s not an unattainable amount of money to aim for. 

How pension planning will help Lisa prepare for early retirement

You might think it’s a simple case of mathematics. Lisa wants to retire in 33 years. She needs £500,000, therefore she has to save £15,151 each year.

That’s about twelve hundred pounds per month. Wow. That is a lot. A quick glance at The Salary Calculator (a great tool for anyone planning their budget and savings), taking it out of her wages would leave her with a little under £400 a month to live on.

It’s not going to work, is it?

Not if Lisa puts all that money under a mattress it won’t.

But if she’s smart about pension planning, she’ll need to save much less. Here’s how she can do it:

1. Lisa needs to open up a pension. That means her money will grow thanks to compound interest - and if she invests in stocks and shares within her pension it will hopefully be boosted even further by the stock market. And every penny earned this way is a penny that’s not coming out of Lisa’s salary.
   
   In fact, with compound interest and a healthy stock market, Lisa could be looking at saving around £100 each month to blow past her goal and retire with a million pound pot!
2. She needs to make sure she’s taking advantage of the tax rules. Tax relief means that for every £8,000 Lisa pays into her pension, her pot will actually grow by ten grand. That means even less of her wages need to be paid into a pension each month.
3. Lisa has to make sure the money she’s saving goes into her pension. Plenty of savings companies will charge a high management fee. Many others - mynestegg included - don’t. By choosing us, she’s making that target of retiring at 55 even easier.
4. Lisa needs to commit to her plan. It’s no good saying “I’d love to retire early” and then spending every penny she earns. Saving is a lifetime habit. But by picking up the right habits, Lisa is giving herself the best chance of success.

And you can too. It all starts with a plan. Reading our free guide - First Job, First Pension - is a great place to start. 

No matter what your big (or small) financial goal is, mynestegg is here to help you - because saving should be simple. See how much you could save in your mynestegg pension or ISA.

We’re always looking to make saving simpler. To learn more about how to set goals, save for the future, or choose the right pension or ISA, visit the mynestegg Knowledge Hub.