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But that has changed now, according to IFS report on UK retirement trends released last month, with “retirement before the state pension age increasingly concentrated among the wealthiest population”.
At the same time, the report showed that those with moderate levels of wealth in their late 50s and early 60s are most likely to be employed, working until they reach retirement age.
In the UK, people can currently claim the State Pension at the age of 66.
The main factor in the possibility of early retirement is, of course, money, Karjalainen said.
“The increase in employment among people with middle wealth levels appears to be largely driven by financial imperatives, as many still, for example, have an outstanding mortgage,” she said.
For Gary Smith, a partner in financial planning and retirement specialist at Evelyn Partners, the key question becomes whether people are able to afford “the life they want.”
Various factors play a role in answering “yes,” Smith said, many of which are related to saving. This is particularly important in the UK, where many pension savings cannot be accessed until age 55.
Karjalainen noted that in some cases, taking this money for early retirement may be a good idea, but caution is required.
“It is important for these individuals to consider the implications of using their pension pot to fund immediate needs in the run-up to reaching state pension age, as it may impact on their long-term financial security and income in retirement,” she said.
Anyone who wants to retire even earlier “will have to have non-pension savings that they can use in the intervening years,” Smith said. Retiring early also means that the retirement pot must be larger to last longer.
He said saving money as soon as possible is crucial for anyone considering early retirement, even if it means implementing lifestyle changes such as skipping holidays abroad and not buying expensive items such as new cars as frequently. This will also ensure that savings last longer, he added.
Another factor that can affect the possibility of early retirement is unavoidable costs, such as housing, Smith said.
“One important expense is housing costs as higher mortgage payments will help quickly deplete retirement savings,” he explained. Those without mortgages might consider downsizing their homes to reduce costs and use the extra money to fund early retirement, he said.
Smith noted that investing, along with saving, is another major way people can position themselves for early retirement.
“A saver can get active with their workplace pension by getting under the hood, seeing how it is invested and determining whether they can improve the default fund,” he explained.
Smith suggested that taking more risks early could make people play stock market growth to their advantage, and advised people to have more protection as retirement approaches.
Regardless of whether people plan to retire early or not, many are not paying enough attention to their retirement funds, Karjalainen told CNBC’s “Squawk Box Europe” recently.
“I think there is a bit of a complacency when it comes to saving pensions, especially among young people,” she said.
She explained that one of the main reasons for this is that determining how to plan your pension and how much to pay it is a difficult decision, with many variable factors such as future earnings and how long the pension will take.
“Because it’s a complicated decision, people put it off, and they accept what their employer tells them about the right contribution rate. And I think that’s really the problem,” Karjalainen said.
UK employers are required to enroll workers in pension plans, where the default contribution set by the government is 8% of qualifying earnings. People often assume that’s enough – as determined by the government – when in reality, Karjalainen said it’s ideal for people to save between 12% and 15% of their total earnings.
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