Retiring early could slash pension by thousands each year – risk of 40% retirement pay cut

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Retiring 10 years early could cut 25 years off the life of a pension, new analysis has found. On the average UK pension pot of £91,000, a person would take a £3,300 annual pay cut, based on this modelling.

Laura Suter, head of personal finance at AJ Bell, said while retiring early may be a dream for many, people looking to “throw in the towel at 55” should be aware they risk draining their pension pot if they’re not careful.

She said they should “properly consider the impact it’s going to have on their pension and on the lifestyle they can afford during retirement before they hand in their notice”.

Ms Suter said: “Retiring even five years earlier can have a dramatic impact on how long your pension pot lasts, meaning that you’ll either need to find money from elsewhere to fund the rest of your retirement or significantly change the amount of money you take from your pension each year.”

Ms Suter cited the example of a person retiring with a £200,000 pension pot, and taking a £15,000 income from it.

READ MORE: ‘Singled out!’ Man, 77, furious as his state pension ‘frozen’ at £80

If they took a £10,000 income from it and retired at 55, their money would only last until the current state pension age of 66 – running out at 67.

With the numbers so stark, it is important for Britons to analyse their pension pot.

This can be challenging, and as a result, it may be necessary to seek advice before making major pension and retirement decisions.

Ms Suter said: “For many the appeal of retiring earlier is that you’re younger and therefore able to enjoy doing more, such as travelling, socialising or hobbies.

“However, these come with a price tag and you could find that funding a more active life coupled with retiring early means you leave yourself with very little to live on when you’re older.

“That’s not to say it can’t be done, but people need to either plan ahead and funnel more into their pension or be realistic about how much income they can take from the pot each year.”


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