Taking Pension Early Calculator
Retirement planning doesn’t have to be complicated. However, understanding exactly how much you will need if taking your pension early, can be. Our calculator works out the amount of money you will need to have invested to provide a sufficient income to cover your expenses in retirement. All you need to do is enter in your own figures below, based on how much you think you’ll need in retirement, and then let our taking pension early calculator do the hard work for you.
Our early retirement pension calculator provides an estimate based on what you might need in your pension to retire early. It’s based on your lifestyle, financial commitments, and investment returns. The calculator is not designed to replace professional advice, always talk to a qualified financial adviser before you make any pension decisions. To get advice now, please contact us.
User Guide for our Early Retirement Calculator
Now that you know how our early retirement calculator works, it’s important that you know how to use it within the context of retirement planning. Planning your financial future is easier than you’d think – just follow the steps listed below.
- Begin with determining your net income. It is the amount of money you make every year after all deductions (for example taxes).
- The next step is to estimate your yearly expenses in retirement. Our early retirement calculator assumes that your lifestyle won’t change significantly during your lifetime. It means that your expenses will be kept at the same level before and during your retirement. If you don’t know your expenses level, this budget calculator might come in handy.
- Decide on your initial investment. How much money can you put into your savings account today? Remember that you won’t be able to take it out before your retirement! Our calculator has this value set to £0 by default, but if you have some savings already, you can include them in your calculations.
- Our calculator will find the monthly deposit automatically. It is the amount of money you will be able to add to your savings account every month.
- Choose the return on investment. It is the percentage interest rate of your account. By default, it is set to 5%. We suggest using this number as a representative amount, even if a little subjective, measure of your investments return.
- You also have to decide on the withdrawal rate. This is the percentage of the sum accumulated on your account you will withdraw on an annual basis. We assume that is equal to 4%,, which is less than the return on investment to cushion any kind of market volatility that may cause temporary decreases in your investment growth.
- After you decide on all of these values, the early retirement calculator will show you the required final balance of your investment and the time you will need to achieve this goal. If you start saving today, you will be able to retire after this exact time.
Our calculator will also provide you with a graph that depicts the balance of your savings account year after year. Notice how fast does the part attributed to interest increases? This is your passive income. The earlier you begin saving, the higher this passive income will be!
How You Can Use Our Early Retirement Calculator
Our calculator works out the amount of money you will need to have invested to provide a sufficient income to cover your expenses in retirement. If you’re not sure how much that is going to be you can use our easy retirement expenses calculator (for singles) or our couples retirement expenses calculator to get this figure.
This calculator works on the ‘4% safe withdrawal rate’ rule of thumb that assumes that if you only take 4% of your fund per year it should protect the capital in your investment. So, if you have £200,000 saved and you take out £8000 a year, you should be able to continue to do this for the length of your retirement (at least 30 years), keeping your initial £200,000 investment intact. The research behind the safe withdrawal rate is based on the famous Trinity Study.
This calculator finds that magic number of which 4% equals our monthly expenses.
The investment return is set at a default of 5% based on Warren Buffet’s claims:
“The economy, as measured by gross domestic product, can be expected to grow at an annual rate of about 3 percent over the long term, and inflation of 2 percent would push nominal GDP growth to 5 percent, Buffett said. Stocks will probably rise at about that rate and dividend payments will boost total returns to 6 percent to 7 percent, he said.”
It’s important to remember
- Warren Buffet’s assumptions are based on the US economy and US stocks and shares which, historically, have outperformed their UK counterparts.
- Investment return is dependent on the risk profile of your investment portfolio. The higher potential for return, the higher the risk of loss. It’s important to talk to a financial adviser about choosing the most suitable investments based on individual circumstances and your financial goals.
ROI vs Withdrawal rate?
While their function is essentially the same (how much money your money makes each year), there’s one important distinction: when you’re in the saving stage (pre-retirement) and the market doesn’t do very well, the worst that can happen is that you won’t save as much or you’ll lose a bit. You can still rely on your active income. When you do retire and quit actively earning money, you need a buffer to make sure that you don’t take too much and deplete your investment savings. 4% is the rule of thumb amount that should keep your capital investment safe.
So in this model, RoI is an expected gain and withdrawal rate is adjusted down for safety reasons. Both numbers take inflation into account – just imagine we have 0% inflation and £100 in the future is worth just as much as £100 now. In reality, your investment will yield a better return, but your cash will be worth less in the future. Both effects cancel each other out.
How This Calculator Can Help You
The problem with planning an early retirement is that you will probably need to fund it for a long time. Most retirement calculators require you to input your life expectancy or estimated retirement length – i.e. predict when you will die. These calculators assume that you will drain all of your resources by that time, so if you happen to live longer than you “planned” to, you could be left with dwindling savings and no way to top them up.
Unlike other similar tools (such as this retirement calculator), our early retirement calculator assumes that you will live solely from the interest that accumulates each year on your investment.
This early retirement calculator calculates the amount that you will need to achieve total financial independence. Each year, your expenses will be covered by the passive income of the interest accumulating on your investment. In theory, the capital amount of your investment should only increase, which means that you should have money to pass on to your loved ones when you die.
How Much Will You Need to Retire?
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 help you work out how much you’ll need. We also cover 3 simple ways to work out how much you need in retirement in our cost of retirement blog.
We’ve also compiled some industry estimates for what you’ll need in retirement here>>
How Much Should You Save for Early Retirement?
Ultimately, tools like these are not detailed enough to base your retirement plans on, although they are a good place to start.
How much you need to save is relative to the amount of income you want in retirement, what age you plan to retire at, how much you can afford to save (and for how long) as well as your investment choices and risk profile.
We recommend that you talk to a financial adviser who can help you build a retirement plan based on your unique circumstances and goals.
Accessing your Pension for Early Retirement
Pensions are the most tax efficient way of saving in the UK, especially if you’re a higher rate taxpayer, so it’s best practice to save into a pension first before exploring other options like ISAs.
However, It is important to know that if you are investing in a pension, you will not be able to access it until you are 55. If you plan to retire before 55 then you should speak to a financial adviser to create a plan that will still provide tax-efficient savings and also allow you to reach your financial goals.
HOW AN IFA CAN HELP YOU
An Independent Financial Adviser can help guide you through life’s major decisions in a number of areas
SIPPs, Flexible Drawdown, Tax-Free Lump Sum, let our experts talk you through your options at retirement and help you meet your goals
Wealth Management & Investments
Make your money work harder for you. Invest tax-efficiently and spread your risk effectively. Our investment experts can help you build a long-term investment plan.
Whether you’re consolidating for ease, preparing for retirement or trying to reach your financial goals through a Pension Transfer, we can help. We’re specialists in this field with over 15 years of expert experience, so you’ll be in safe hands.
This early retirement pension calculator is provided for general information purposes only. It is a guide and does not reflect the actual amount that you will need in retirement.
Any information contained within this website should not be deemed to constitute financial advice, and should not be relied upon as the basis for a decision to enter into a transaction, or as the basis for any financial or investment decision. It is provided for general information and it is vital (and in most cases a regulatory requirement) that you contact a Financial Adviser for tailored professional advice in regard to pension and retirement planning.
- No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
- If you are a member of a pension scheme with safeguarded benefits, it is likely it would be in your best interests to retain the safeguarded benefits.
- Make sure you understand all the risks before investing.
- The value of investments and the income they produce can fall as well as rise and you may not get back your original investment. Past performance is not a reliable indicator of future results.