Cruises in the Caribbean. A quiet house by the sea. Whatever your plans, an early retirement means you have more time to spend doing the things you love.
Unfortunately, there’s no magic formula for an early retirement. Instead, it’s a question of careful saving, putting your money in the right pension funds, investment management and - more often than not - receiving great financial advice. Here are some of our top tips for an early retirement:
Staying clear of the default option
In general, people tend to invest their pensions in the ‘default’ option. Usually this is a mixed portfolio of shares and bonds. However, often this isn’t always the option that delivers the best long term returns.
Sometimes equity portfolios see better returns over longer periods. Figures show that over a 30 year period, equity portfolios perform better than default options. What’s more, on average they provide a pension pot that is 25% higher however, this is not guaranteed.
Making an active choice about your pension investment can transform your pension pot and mean that you have the security to retire early. The right financial planner will be able to advise you on how best to get ‘active’ with your retirement strategy.
Stick to a long term strategy
Making enough money to last your retirement takes careful planning and plenty of patience. If you invest over several decades, some downturns are inevitable.
When downturns come, it’s important not to panic. When you panic, you won’t make the best long term investment decisions for your portfolio. Often, when there is a decline in markets, investors want to exit and wait for the markets to recover before jumping back in. Strategies like this are trying to predict market movements: an impossibility. Over the long run, a reactionary investment strategy will likely just erode your savings and the returns they yield won’t be as high as they otherwise might have been.
Have faith in the markets
Investing broadly across a range of markets should make you money over time. Maintaining confidence in the markets’ ability to produce long term returns is essential for pensions investments.
Limiting yourself to one stock market means you concentrate your risk. This can have bad implications for your long term investments. Spreading your investments over a range of markets, on the other hand, means you won’t be reduced to ‘outguessing’ the market.
Speaking to an experienced financial planner with a detailed knowledge of global markets will help you develop a diversified portfolio. This way you’ll leave speculation to the gamblers.
Mix it up
Invest across a range of investment vehicles. Using ISAs means that you’ll have the option to withdraw money before you reach retirement age.
Although your pension pots will likely be the core component of your retirement portfolio, ISAs give you added flexibility during the first years of early retirement. Also, if you plan to take a staggered retirement, ISAs are an effective way to top up your income before you retire fully. Remember that your annual ISA allowance is £20,000 for the tax year 2018/19.
Keep an eye out for game changers
Long term savers should look ahead for the effect future rule changes on their pensions and savings might have. Changes, like the increase in minimum private pension age from 55 to 57 by 2028, should be factored in to your early retirement plan. These can mean you might have to adjust your savings strategy.
Whatever your retirement goals, at Bailey Richards, we have an in-depth knowledge of global markets and financial devices which we can use to help you meet them. If you’d like to know more get in touch with us.