Can I Retire at 55 with £400k? (+ How Long it Will Last)

It’s the dream. Early retirement. A stack of cash in the bank. An exciting and colourful bucket list of a million different treats to enjoy. But in reality, how much does early retirement cost? How much do you need to have saved? How long will your money last? And can you plan to retire at 55 with £400k in your pension pot?

Can I retire at 55 with £400k in the UK?  You can retire at 55 with £400k in the UK, as this might reasonably give you £12-16K income a year sticking to the recommended 3-4% a year safe withdrawal rate. However that barely covers minimum income standards in the UK, much less provides for a comfortable retirement.

If you can live on 12K per year. Great. But if your income needs are greater you might struggle. For instance, if you plan to take 50K per year your pension pot will be gone in around 8 years. So you need to do your homework before you make a decision.

Financial advisor Simon Garber answering Can I retire at 55 with 300K

Can you retire at 55 with £400k?

It depends. The short answer is, Yes. It is possible to retire at 55 with 400K in the UK. But will you want to? That’s a different matter.

Simon Garber, a Pensions and Retirement Specialist says,

‘It can be done. We have clients who do it [retire at 55 with 400K]. But they are not really living off just that. They have other assets. And moderate means.’

If you are considering retirement at 55 with 400K in your pension pot there are 4 important questions worth asking yourself.

  1. How much money do you need each year?
  2. Do you have any other income?
  3. What are your retirement lifestyle goals?
  4. How long do you need 400K to last?

1. How much money do you need each year?

Have you sat down and worked out the cost of your retirement and the lifestyle you want to maintain? What are your financial commitments and outgoings? Now, and in the future?

You generally need more money when you retire younger and are more active (mortgages, dependent kids, hobbies and sports, etc.) Costs then reduce (mortgage free 60’s. Kids flown the nest). Then rise again later (due to costs such as increased insurance, medical and medical care costs). In short, your retirement outgoings aren’t static.

Which? estimates that a comfortable retirement for a single person costs around £20,000 per year.  This includes such things as european travel/holidays, buying new clothes and recreation/leisure.  But this is based on a lot of assumptions.

If you are not sure how much you need in retirement we’ve created the world’s easiest retirement calculator to help you work out how much you’ll need.

2. Do you have any other income?

If a 400K pension pot is your sole source of retirement income then how you plan to use it will be wildly different to someone who, for example, is simply using their £400K as a ‘top up’ to their Fun Fund.

£400K can work if you retire at 55. But it’s really important to look at all other possible assets and income you may have available. This could include money from downsizing, investments & savings, income from earnings, inheritance etc. This could also include any tax breaks that might be available to you that could save you thousands in the long term.

It’s important you do your homework. But, ideally, speak to a retirement specialist. It’s their job to make your assets work hard for you.

3. What are your retirement lifestyle goals?

Lifestyle is really important when considering your retirement and its cost. In fact, lifestyle should be your starting point.

Retirement planning is not as simple as picking an arbitrary figure out of thin air and thinking ‘Yeah, I could live on that’. It should be about precise calculations and an in-depth look at the life you lead now, and the one you want to lead in the future.

The Two-thirds rule

The ⅔’s rule is a very crude measure for estimating the cost of your retirement, that comes from Target Replacement Rate. But it states that you’ll need between half and two-thirds of your pre-retirement income to maintain a similar lifestyle standard in retirement.

But this is based on quite a few assumptions. Such as being mortgage and dependent free.

If you want help planning your ideal retirement and how much it will cost, you can read our retirement blog.

4. How long do you need 400K to last?

That is the golden question. Worthy of its own section (see below). Because no one knows how long they are going to live. And no one knows what life is going to throw at them. So it’s important you cover ALL your bases.

Cashflow modelling for retirement planning - how long will your money last in retirement

How long will £400k last in retirement?

It depends. YOU are the determining factor. 400K could last you 40 years. Or you could blow it all in the first decade.

The basics

If you retire at 55, and the average life expectancy is around 87, then 400K will need to last you 30+ years.

If it’s your only source of retirement income, until the state pension kicks in at around 67/68, then you are going to have to budget hard to make it last.

Use our ONS life expectancy calculator to see what your life expectancy is. 

The 4% Rule – safe levels of withdrawal

As a general rule of thumb, pension specialists advise that you – don’t take more than 4% of your pension pot each year. This is considered a sustainable amount or a safe level of withdrawal.

That’s because you need ‘wiggle room’ when investing. Markets go up and down. 4% gives you that wiggle room (as long as your pension has been invested properly – not too much risk, not too little).

You will still be drawing down from your pension each year (taking money out). But at a sustainable rate.

So if you take 4% per year from 400k you could still have money in your pension pot at the end of a 25-30 year retirement.

If you retire at 55, that takes you up to 85 years old (close to the current UK average life expectancy.)

Taking 4% per year keeps your money at a level where it shouldn’t run out. And if there is any remaining after you die it can be left to your loved ones free of inheritance tax ensuring your loved ones are taken care of.

Of course the problem with retirement planning is that none of us know how long we’re going to live. But if we retire at 55, and only plan for a 20 year retirement, those last few decades could be pretty bleak living off state pension alone!

That’s why our Retirement Specialist Simon Garber prefers to work with 3% for those considering early retirement.

“From experience retirement can be ‘suck it and see’ when it comes to planning how much  income you need. You’re moving into a new stage of life, and often there are quite a few unknowns. 

In addition, managing capital for income is a new step that should be eased into. 

Remember, you don’t need to set the income bar high at the start, because drawdown is flexible. You can always adjust your income in the future. Plus, if you’ve underestimated how much you’ll need or need a cash injection to cover a holiday or Christmas etc, you take always take an ad hoc withdrawal.

Nothing is set in stone at retirement, but remember, it’s  important to review regularly.”

Not sure how much you could safely draw down from your pension pot each year? Try our Pension Drawdown Calculator.

Retiring at 55 with 400K – using the 4% rule

If you retire at 55 with 400K and use the 3-4% rule (safe withdrawal rate) you would have around 12-16K per year to live on (assuming this was your only income). Let’s call it £14K for argument’s sake. 

Can you live on 14K per year?

Whilst £14K a year is above the £9,397 the Joseph Rowntree Foundation say you need as a minimum income standard as a PENSIONER – a 55-year-old is going to be far more active and will probably need more income.

If you read this research, or any similar research (with similar research findings of 14k per year), please be aware that they only factor in the very basics – clothes on your back, roof over your head, no treats allowed.

With the state pension only available from 67 years (and rising) you could spend the first 13 years of your retirement living on next to nothing.

Which? offers a more realistic estimate, that a comfortable retirement for a single person costs around £20,000 per year.  This includes such things as european travel/holidays, buying new clothes and recreation/leisure.

But your 400K pension pot will leave you £4-8K short of this retirement level each year.

Their estimate for a luxurious retirement for a single person costs around £33,000 per year. Including eating out, leisure membership and long haul travel .

But your 400K pension pot will leave you £17-21K short of this retirement level each year. 

*Please note – all of the above research has its own flaws, limitations, and are based on a variety of different ‘assumptions’. Which is why it’s imperative you look at your retirement as an individual and ideally seek professional advice. 

Confused yet? Not sure how much you will need in retirement?

Planning your expenses in retirement can be a daunting task, especially if you’re planning years ahead, so we’ve created the world’s easiest retirement calculator to get your started.

We also cover 3 simple ways to work out how much you need in retirement in our cost of retirement blog.

Get independent pension advice

Of course, the best course of action is to talk to a retirement specialist and create a bespoke plan that’s tailored to you.

Your pension is likely to be the biggest financial investment you will ever make. There  is no one size fits allapproach. You are unique. Your lifestyle and retirement dreams are specific to you. And it’s possible to make an array of financial planning mistakes. Which is why we would always recommend seeking professional advice.

At 2020 Financial we specialise in all areas of pension and retirement planning.

Schedule a free discovery call with Simon to see how we can help and if you’d be a good fit to work with us.

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Simon Garber, DIP PFS | Pension Transfer Specialist | Southampton

About the Author

Simon Garber DIP PFS is an Independent Financial Advisor and Qualified Pension Transfer Specialist. He is the Managing Director and Founder of 2020 Financial, based in Southampton, Hampshire. Simon specialises in Pensions and Retirement planning and is a later life planning specialist. He also holds qualifications in investment and life insurance and is a member of the Personal Finance Society and Chartered Insurance Institute.

Simon is passionate about providing the highest standards of customer care and transparency. 2020 Financial were awarded the Pension Gold Standard in 2019. You can find out more about Simon here.

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