Planning for Partial Early Retirement

a pile of books, sunglasses, on a beach
Could you enjoy more of this whilst working part-time in your fifties?
Is early retirement realistic?

I started this site when I discovered the financial independence/retire early movement, which has gained in popularity in the UK over the past few years. At my age the likelihood of me being able to accrue a large enough portfolio to fund my living expenses before I reach traditional retirement age isn’t truly realistic. I’ve started too late. I am unlikely to be able to save enough money to stop work completely over the next ten years.

gold number four on a blue background
If you are going to receive a pension at 60 or 65 you can withdraw more than 4% from your portfolio
variations of fi/re

Whilst listening to an episode of the Choose FI Canada podcast about the 4% rule (i.e. you need to save 25 times your annual expenses and then can draw down 4% of that every year to live on without ever running out of money) I realised that there are many types of early retirement. They talked about lots of different ways that you can achieve financial independence. If you are nearing traditional retirement age then you should consider what your pension will provide when you get there. Unlike those in their twenties and thirties your savings don’t need to last for the rest of your life. You also don’t need to ‘retire’. You could work part time or change your job to something more rewarding, but which doesn’t pay as much.

the word money on a white background
Do you know how much money your pension is going to provide you to live on?
know your pension

I am lucky enough to have a ‘defined benefit’ pension. This means that I know exactly how much money I will receive when I retire. Nowadays most pension schemes are ‘defined contribution’. You put in a set amount, but what you will receive depends on how the market performs.

Do you know what type of pension you have? In the UK you are automatically enrolled into your company pension scheme and you should get a statement every year. Dig it out and take a look at it. How much will you have to live off once you reach traditional retirement age? Is that realistic for you or will you need to have some money in savings to live off as well? It may be that you’re lucky enough that your predicted pension will provide you with a great standard of living. If so, you won’t need a lot of savings in the bank e.g.to pay for a new car or that luxury cruise.

arched stone bridge over a river
Could you use interest on your savings to pay some of your bills for a few years?
will your Savings bridge the gap?

Unlike typical FI/RE, partial early retirement allows you to use your savings to pay a part of your day to day living expenses. For example, in five years’ time I am hoping to have saved £71,000. This is nothing compared to the portfolios that those thirty-somethings need to accrue to live on, but it may be enough to pay some of my expenses so that I can work part time. If we apply the 4% ‘assumption’ i.e. draw 4% every year, that would be £2840 per year. Then divide this by 12 and we get £236. This would go quite a way to paying my half of the bills e.g. gas and electricity

Would like to reduce your working hours or move to a more rewarding job? How much money would you need to have saved to meet the shortfall between your currently salary and what you will receive once you’ve made that change? It may be that your living expenses will be less in the future. For example, you may be working hard to pay off your mortgage now, but decide once it reaches a certain level just to make the minimum monthly payment rather than overpaying.

the number seven on an orange background
Maybe you could draw down more money and reduce your nest egg over time
Could you draw down More than 4%?

The figure of 4% is chosen as it is believed that at that rate, the capital will last and still increase in value for many years to come. When you are you are approaching traditional retirement age, you don’t need to worry about this. It doesn’t matter if you reduce your savings pot a bit, as long as what you have left, along with your pension, will be enough to provide you with a comfortable life in the future.

make some extra money

Under this plan it seems very likely that I could work part time from aged 55, but ideally I would like to have paid off the mortgage by this point. If you want to reduce the daily living expenses that your savings’ interest will have to cover you will need to think about ways of earning more money. Those of us who have discovered FI/RE late in life may have certain advantages which enable us to do this. For example, one possibility is to do Airbnb or rent out a room. You can earn £7,500 a year doing this before having to pay any tax.

Are you aiming for complete financial independence or are you just hoping to work a little less in the future? I would love to know your plans for the future.