Many retirement savers dream of the day when they can hang up their work clothes, kick their shoes off and relax but what seemed a good idea can soon turn into a nightmare for the unprepared.
Early retirement is generally considered at some time between the ages of 55 and 60 years old.
But unless retirees have an excellent financial package, losing those extra years of saving can make retirement a disaster.
Retirement is like the self-employed taking a holiday.
The idea is great but the financial implication is a double-whammy.
Not only do you have to pay for the trip, but you are also missing out on earning money.
Retirement comes with consequences
Early retirement has the same consequences – a hard-earned nest-egg is funding the good times, but also has to pay for an extra decade without a pay packet.
Someone seeking early retirement can take some action to minimise the impact of losing savings.
Savers must consider the time they may have to fund. It could be up to 40 years. The state pension will pay out for most of that time, but hardly finances a comfortable lifestyle.
Recent studies estimate the average household spends £2,200 a month during retirement, which is £26,400 a year.
Multiply this by the number of years the retirement is expected to last to give a savings target, but subtract guaranteed pension payments from work and the state pension,
This gives a more realistic savings target and offers some idea of how much cash to stash while still working and when the target might be reached.
Don’t forget to work out how much is really needed involves some lifestyle planning.
For someone taking early retirement, the time off work may be nearly as long as that spent employed.
That’s a lot of time to fill and holidays and hobbies do not come cheap.
Lifestyle planning is thinking about how to spend time after work and what the cost will be, then tailoring a savings plan to meet the financial goals.
Do not forget to factor in repaying debt, such as mortgages, loans and credit cards.
That dream of sipping cocktails on a sun-drenched sandy beach is within grasp, but only after years of saving hard.