The Investors Chronicle ran an article headed “How to retire early” in this week’s edition. It contains some useful tips. As someone who retired from full-time employment at the age of 50 on medical grounds I can make some comments on the subject. I am now 78 so have been lucky in some regards to survive so long and it’s worth bearing in mind that life, or death, can be very uncertain so making provision for an early retirement is always sensible even if you in practice can carry on working to a late age.
The IC article suggests that investing in equities from an early age is helpful and I would certainly agree with that. You can of course get tax relief from investing in pension funds and the best option is to set up a SIPP (Self Invested Personal Pension) with a low-cost provider so that you minimise charges and make your own investment decisions without the charges imposed by fund managers. There is no evidence that most fund managers are any better than randomly picking investments with a pin so it’s not difficult to do as well as them.
To be more specific you need to invest directly in listed companies although if you don’t wish to spend time looking at individual companies then investment trust companies are a second-best alternative.
As the IC article points out, it is possible to “retire early without being on a six-figure salary”. But you do need to live well within your means and live somewhat frugally.
Elsewhere in the IC it is pointed out that the level of savings for most people in defined contribution company pension schemes in the UK is “woefully low” and averages about 8% of salary. This is much less than in many other countries and is insufficient to build a reasonably large pension pot.
A related problem is that many UK pension schemes are too small with high costs. Effectively they provide poor value for money. The FCA are aiming to tackle this problem with a new “traffic-light” system which would rate pension funds. The FCA is consulting on their proposals now to which you can respond – see https://www.fca.org.uk/publications/consultation-papers/cp24-16-value-for-money-framework
You might be wondering how my own pension fund is doing since I have lived much longer than expected. Well it has increased in value over the last 28 years by sensible investment decisions and frugal living so I have been donating more to charities and other good causes. I have also made adequate provision for my wife and offspring. As one gets past a certain age the desire for expensive holidays, meals out, new suits, flash cars and other luxuries does reduce somewhat so that helps. The “triple-lock” on state pensions also helps of course but medical expenses have also risen although most of those are covered by the NHS.
But the key message is to take control of your own pension provision so as to minimise costs and ensure good long-term investment performance.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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