Despite Chancellor Jeremy Hunt’s efforts to keep people in work as long as possible, the dream for many people is to retire as soon as possible.
And figures show that an increasing number of people are reaching their goal of stopping work before the state pension age (currently 66, but soon rising to 67). The number of people classified as “economically inactive” – those who are neither in a job nor looking for work, excluding students – has risen by 565,000 to 6.7 million since the start of 2020.
One of the main reasons for this increase has been the number of 50-64-year-olds who do not want to return to work, a House of Lords report found. Many said it was a “lifestyle choice” to stop working rather than being forced out due to illness.
People who take early retirement will typically pay themselves an income from retirement savings when private pensions are accessed at age 55. Those who want to retire before their mid-55s will rely on income from savings in ISAs and other investment accounts.
But what is it like to retire early? We asked these people how they achieved it and how they spend their time.
‘We are in Vietnam and rent an apartment on the beach’
Alan Donegan, 44, and his wife Katie, 39, retired four years ago with a combined savings of £1m. to pay them an income of £40,000 a year. Their portfolio has now grown to £1.65 million despite the economic uncertainty and they have an income of £60,000 a year.
Alan, who met Katie in 2005, says the couple have saved hard over the years to stop working long before the official retirement age. They lived in a two-bed flat, drove a £5,000 used Skoda Citigo and cooked their own lunches rather than eating out.
They committed to early retirement in 2015 and gave up their day jobs in 2019 (Katie was an actuary and Alan delivered courses) and now live off income from their investments, allowing them to spend their time as they please without having to Make Money.
They invest in global tracker funds through Isas, Sipps and general investment accounts and their investment portfolio is currently around £1.65m. worth. The main fund they invest in is Vanguard FTSE Developed world ex. United Kingdom.
“Katie and I are currently in Vietnam where we have been renting an apartment on the beach for the past few weeks. Currently our lives consist of an early morning run on the beach and a swim in the sea before we have a leisurely breakfast with a cup of coffee before spending the day working on our projects. We are in Vietnam for a month before going to Japan and returning to the UK this summer. I spend my time seeing the world, meeting new people and doing the work I really want to do.
“We owned a flat in Basingstoke as well as a couple of flats that we rented out, but we recently sold all our properties. We just rent out different places on short-term lets, wherever it is in the world.
“We follow the 4 per cent rule – meaning we withdraw up to 4 per cent from our investments each year to fund our living costs. This means we currently have an annual income of around £60,000. A budget of £60,000 per year is of course longer in different places. Where we are in Da’Nang Vietnam now you can live like a king. A nice hotel room on the beach in Da’Nang is £20 a night. But if you were to stay in New York City, it doesn’t go very far, you’d struggle to get anywhere under £100.
“Early retirement can go seriously wrong if you don’t have a purpose. Ours is to help other people get their finances under control. Katie and I write blogs and articles to help other people take control of their finances and retire early through our free Rebel Finance School course. Last year 5,000 people took the course and we didn’t make a penny from them or have any sponsors.
“Retirement isn’t about sitting on a beach sipping margaritas for the rest of your life, it’s about getting to do what you want with your time. We are back in the UK this summer. We are staying with friends and family for a bit, but we don’t know where we will be after July. It may seem strange to some people. But not knowing where we’re going to live or what we’re going to do is what keeps life exciting for us.”
‘I was left with a massive vacuum that was difficult to fill’
David Margetts, 60, retired three years ago aged 57 after a career in financial services. He had run his own business for six years before retiring and often traveled to Asia to meet clients.
When the Covid-19 pandemic hit, his travel stopped and he had the opportunity to spend more time with his three children and three grandchildren. He decided to retire and now lives on an income of more than £6,000 a month (about £70,000 a year), mainly drawn from private pension savings and general investment accounts.
“I’ve been a saver all my life and I planned very well for his point. When I got my first pay packet working at a gas station at the age of 15, my dad took me aside and said ‘right son, put 33 percent away and don’t touch it, put another 33 percent into an instant access account for specials or unexpected bills, and go and enjoy the rest.’
“I continued with that throughout my career. When I got promotions I tried to save the extra money (investing at least 60 per cent in shares). The houses were cheaper too. I bought my first house for £60,000 in 1985 aged 22 with a mortgage of £30,000 It’s tougher for people today but not impossible if you start early enough.
“The transition to retirement was not easy. I was left with a massive vacuum that was hard to fill. But now that I’m a few years in, I’ve settled into it. At first I threw myself into a lot of voluntary work, but I’ve scaled back and now spend my time working out, playing sports like tennis, gardening, studying (I’m doing a philosophy course at the moment ) and spend time with my wife and children.
“I saw that Jeremy Hunt wants early retirees to go back to work. But that’s a bit of an insult really. People like me have worked extremely hard to get into this position and to be independent. We’re not dependent on a state pension or any benefits and we have earned this freedom to choose how we want to spend our lives.
“It makes no sense either, as my earnings are taxed at 50 percent because I am a higher rate taxpayer. So financially it’s not worth it and I don’t think anything could tempt me back to work.”