The pre-state pension gap is the amount of money you need to retire earlier than the state pension age of 68 – but the cost of retiring early can run into tens of thousands.

For example, someone who wishes to retire at 60, assuming their state pension age is 68 and they’re retiring as a couple, would need to have saved enough to generate an income of £136,000 to support them during this eight-year gap, on top of what they need for the rest of their retirement, according to a study by PensionBee.

When considering the average life expectancy for women (88) and men (85), a woman retiring at 60 in a couple would need a combined retirement income with her partner of £476,000 for her 28 years of expected retirement, to live a moderate lifestyle.

Assuming she would receive the full State Pension from 68, £212,000 of this total would come from her State Pension payments and the remaining £264,000 would need to be generated by the couple’s workplace or personal pensions and other savings.

Age 60 is considered the ‘ideal’ retirement age while the UK healthy life expectancy age (the number of years you can expect to live in good health) is 63. But four in 10 British adults (40%), equivalent to around 13m people, think they will not be able to retire before the state pension entitlement age. This rises to 48% if the state pension age rises to 68.

What do I need to retire early?

Since we’ve said that retirement = financial independence, the question becomes: what do I need to become financially independent? (i.e. not having to do a job I no longer want to do).

Financial independence doesn’t necessarily mean being rich. All it means is that your outgoings over the rest of your life don’t exceed your income plus your savings. Once you put it in those stark terms, you can break your ambition down into goals.

What you need to achieve financial independence

Being financially independent usually requires:

• Paying off your debts
• Paying off your mortgage (or being close to doing so)
• Enough income for your daily needs (e.g. from your pension)
• Additional funds so you can enjoy life
• Sufficient savings for emergencies

This doesn’t necessarily demand a huge level of wealth – but it does require living within your means. The more modest your intended lifestyle, the less you’ll need in the way of assets.

The dream of retiring early is alive. For many people, it is in fact necessary to give up work before they reach state pension age, due to caring responsibilities, or illness. As the state pension age rises, more and more people will find they either want or need to retire before they reach it. So identifying how much extra pension would be required to do so is an important part of retirement planning.

Talk to us

Pensions can be an effective way of saving for the future – both for yourself and your loved ones. An IFA can review your existing investments and help you to find the most tax-efficient saving options going forward. This will allow you to plan for your retirement alongside the current inflationary pressures. Please contact us and talk to one of our advisers about how we can help you.

PLEASE NOTE: A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change. You should seek advice to understand your options at retirement.

Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.