Eight tips to help you retire early

While we may spend years saving up for a pension, for many of us, stopping work young and retiring early is the ultimate goal.

Early retirement is increasingly just the preserve of the wealthy, with almost a quarter of the wealthiest 20% of the population retiring aged 55-64 versus just 7% of the poorest fifth, according to November 2023 data from the Institute of Fiscal Studies.

Increases in the state pension age, the demise of generous defined benefit (final salary) pensions in the private sector and the cost-of-living crisis – where bills increased sharply, are some of the factors making it more difficult to retire early.

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Meanwhile, the Financial Independence, Retire Early (FIRE) movement which advocates frugality alongside extreme savings and investments to achieve financial freedom is growing in popularity. Typically saving up to 70% of their annual income, FIRE followers often aim to retire in their 30s or 40s, living off small withdrawals from their accumulated funds.

However, FIRE does not work for everyone. Tom Selby, director of public policy at AJ Bell, says: “The FIRE movement tends to advocate fairly extreme savings strategies which won’t be realistic or desirable for lots of people.”

So, what else can you do to help you stop the daily work grind and reduce or stop working altogether before retirement age? We look at the eight steps you can take now, plus how to invest to help you enjoy life after work sooner.

Eight ways to retire early

1.  Cut your spending

To help you save money to retire early, doing something as simple as reducing outgoings can help. Cutting down on a few unused subscriptions or making a shopping list are some examples to help slash your spending.

Try a free budget planner, such as the one at Moneyhelper, the government educational website. Or use a free budgeting app, such as Plum, Emma and HyperJar, to help you categorise and review your spending by linking to your bank accounts.

2.  Pay off your mortgage

Not having a mortgage to worry about can help reduce financial stress when looking to retire early.

Becky O’Connor, director of public affairs at PensionBee says: “Having a mortgage that runs into retirement can be a problem, because repayments can mean people have to take more out of their pensions in the early years.”

You might be able to pay off the mortgage using the 25% tax-free lump sum from your pension, that you can take from age 55 (rising to 57 in 2028). But also consider making overpayments. Most mortgage deals allow you to overpay up to 10% of the loan each year.

3. Review your investments

Making sure your investment strategy aligns with your goals is essential for anyone looking to stop work sooner than the standard retirement age.

Worryingly, many of us don’t know how our pension is invested.

A study by the Pensions and Lifetime Savings Association revealed that although many pension savers (82%) understand their pension is invested, only 26% know what it is invested in.

Previous studies have warned that workers aren’t taking enough risk with their investment choices.

An estimated four million workers under 40 could be losing out on investment returns because they are in low-risk pensions that do not have potential for higher growth, according to research by Opinium for Interactive Investor.

If you have at least five years to retirement, equities should make up most of your portfolio. This is because although they come with higher risks, they are the tried and tested way to grow your money over time. Younger investors have the time to weather the ups and downs of the stock market.

Over decades, the difference becomes very large.

Actuarial consultants LCP calculated by investing all of your money in equities an average earner would expect to have £46,000 more money at retirement compared to a balanced moderate risk fund, that typically has 60 per cent in equities.

AJ Bell's Selby says: “Review your investments and make sure you are happy with the risks you are taking – don’t assume your automatic ‘default’ pension investment is appropriate.”

4.  Save more and start early

The more money you can spare to pay in, the bigger your final pension pot will be. The earlier you invest, the more time your money has chance to grow.

AJ Bell analysis suggests someone who starts contributing to a pension from age 22 could need to save £1,900 a year to retire at age 68 (state pension age) with a £31,300 annual net income – what’s needed for the ‘moderate’ standard of living as defined by the Retirement Living Standards from the Pensions and Lifetime Savings Association.

These savings assume inflation adjusted investment returns of 5% after charges per annum and contributions rising by 2% per year up until retirement.

If you wanted to retire at age 60 on the same income, you could need to contribute £3,100 a year – more than double the amount. For someone who starts contributing at age 30, the contribution figures jump to £5,300 per year if they want to retire at age 60.

5.  Make the most of ‘free money’

Don’t underestimate the power of the boost from upfront income tax relief on pension contributions. If you’re a basic rate taxpayer, every pound you pay in becomes £1.25, while for higher rate taxpayers it becomes £1.66.

Employer contributions to your pension – usually at least 4% of salary - are also ‘free money’ that can help you retire early. Every time you start a new job, make sure you ask about the pension. Some firms offer extra employer contributions as part of their overall remuneration package. Also consider increasing your contributions when your pay goes up – if they are matched by your employer, this will boost your pension savings further.

6.  Check your state pension entitlement

The state pension is a valuable source of retirement income, protected by the ‘triple lock’, which ratchets up the value, depending on earnings growth and inflation. Currently available from your 66th birthday, state pension age is scheduled to rise to 67 by 2028 and to 68 by 2046.

You need at least 10 qualifying years of National Insurance (NI) contributions to receive any state pension at all and at least 35 years to receive the full new state pension amount, worth just over £11,500 in the 2024/25 tax year.

The full new state pension will increase by more than £470 to £11,973 per year (£230.25 per week) on April 6, 2025.

Alice Haine, personal finance analyst at investment platform Bestinvest says: “Check your state pension record for any gaps – filling them could be one of the best retirement decisions you make.”

If you do have gaps, check with the Department for Work and Pensions to see if you qualified for a benefit during those periods which comes with a NI credit. Examples include Child Benefit and Universal Credit.

The government is currently allowing people to pay for gaps on their NI record all the way back to April 2006. Haine says: “This unique window of opportunity to plug up to 17 years of missed NI contributions in one go closes on 5 April, 2025, so it is imperative taxpayers take advantage while they can.”

HMRC softened the deadline in March 2025 but those who wish to claim extra credits must log an online callback request by 5 April.

7.  Make a financial plan 

For anyone planning to retire in their 50s or earlier, it is important to note you usually cannot access your private pension before age 55.

This minimum pension access age is set to rise to age 57 in 2028.

Selby says: “It is possible to retire before this age, but you’d need non-pension assets, such as individual savings accounts (ISAs) or buy-to-let property, to support your lifestyle until you can access your retirement pot.

"The state pension age could go up even further in the future. If that happens, early retirement might be even more difficult, as you’ll need to find extra income to cover those additional years during which you don’t receive the state pension.”

So, make sure you’ve sat down, ideally with a regulated independent financial adviser, and thought carefully about your spending plans and the impact retiring earlier will have on them.

8. Track down old pensions

Billions of pounds of pension savings is sitting in lost accounts which could belong to you and boost your retirement income.

There is an eye-watering £31.1 billion lying in unclaimed, inactive, or lost pension pots, according to the latest research - 60% higher than in 2018.

Some 3.3 million pension pots are now considered lost, at an average sum of £9,470.

Pension cash gets lost when people lose track of pots from old jobs, perhaps when they move house and don’t tell their scheme providers of a change of address.

You can track down old pensions using a free pension tracing service on the government website.

Chris Blackwood, spokesperson for the Pension Attention campaign, added: “You could also retrace your career steps, check old papers, look for any gaps in your pension history, and contact your provider to update your contact details.”

We cover tracing old pensions in more detail in our "how to find lost pensions" guide.

How much do you need to retire?

While some choose to follow the 8% pension rule, there's no magic number for how much you should save for retirement. Everyone’s circumstances will be different.

The Retirement Living Standards, based on independent research by Loughborough University, suggests that a single person might need to generate £14,000 income a year from their pensions and savings as a minimum to enjoy retirement, with the occasional meal out, a UK holiday and some affordable leisure activities.

This rises to £31,300 for a more active retirement including one foreign holiday a year and eating out a few times a month.

Living a ‘comfortable’ life requires £43,100 annual income in retirement.

For couples, the figures are £22,000, £43,000 and £59,000 respectively.

For those eligible for the full state pension, the £11,973 a year from April 2025 puts a small but important dent in these figures.

The rest will need to be made up from workplace and private pensions or income from any property owned or perhaps trusts.

For those with a shortfall, there’s the option of going back to work. One in seven retirees are returning to work or are considering doing so, with financial pressures, a lack of pension provision and desire for social connection driving this, according to Standard Life’s Retirement Voice report.

Over a third (34%) have found their living costs have increased while 27% have realised their pension is not providing enough income to live on. Meanwhile, over two in five (43%) want to earn more money so they can treat themselves more in retirement.

Pension Wise is a free and impartial government service that helps you understand the options for your pension pot if you’re over 55.

But if you need help with planning an early retirement you can speak to a financial adviser who can help map out a plan. Find one in your area at unbiased.co.uk.