Retire at 40. Dream on, you’ll be lucky to stop working before age 70

Today’s workers need a wake-up call. Many are suffering from a serious delusion, and it’s time somebody told them the truth.

It’s a harsh truth, and one I don’t like myself. We have to face up to it, though. Just as this woman did, after kidding herself she would be able to retire at 40.

Anybody who thinks they are able to stop working before today’s state pension age of 66 and live their final years in comfort had better be bloomin’ rich.

Because if they’re not, they will face a huge financial struggle and probably have to return to the workplace to make ends meet.

I’ve decided to put the message out there, because too many seem to have kidded themselves that early retirement is an achievable goal.

Since the pandemic, an estimated 600,000 workers in the 50s have quit their jobs and taken early retirement.

Now they’re on their way back in what has been dubbed “The Great Unretirement”. A good number of them are bored, lonely and miss having a reason to get up in the morning.

Most of them have no choice, though. They just don’t have enough money, and the cost-of-living crisis has made this patently obvious.

Retirement is incredibly expensive. If you quit work at 55, there’s a fair chance you will have to fund yourself for another three decades.

And for the first dozen years or so, you will have to do so without any state pension. It’s a huge gap to plug.

A single person needs an annual income of around £20,800 to live a moderate retirement and £33,600 for a comfortable one, according to the Pensions and Lifetime Savings Association.

That’s enough to give them financial security and flexibility, one foreign holiday a year, and the odd meal out.

It assumes they have paid off the mortgage and are not renting. 

Currently, a 65-year-old with £100,000 worth of pension can get a single life annuity paying a level income of £6,870 a year, according to Hargreaves Lansdown.

If they qualified for the full new state pension, which is worth £10,600 a year from April, they would need another £148,471 in personal retirement savings to generate that moderate income.

If they wanted a comfortable retirement income of £33,600, they would need £334,789 of retirement savings on top of their state entitlement.

That’s a tall order, and it gets even taller if you want to retire early.

Somebody who stopped work at 55 would need to fund themselves for 11 years before the state pension kicks in.

Yet at that age, they would typically get just £5,742 a year income from an annuity. To generate £20,800 a year, they would need £362,243 in pension.

For a comfortable retirement, they would need a whopping £585,162. Who of us has that kind of money at age 55?

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And even if we do have a big enough pot, retiring early is fraught with pitfalls. First, we have to clear all of our debts, otherwise they will only spiral.

Then we have to hope no big expenses will eat into what is a fixed income.

Also, the figures I have produced here are for level annuities that will not rise in line with inflation.

A 55-year-old who wants to generate £33,600 a year income that rises in line with RPI would need pension savings of a staggering £1,095,890.

If they had a partner and wanted a joint life annuity, they’d need even more.

Many of those who took early retirement after the pandemic are discovering these uncomfortable facts for themselves, and returning to work.

The truth is that nearly all of us will have to work on and on. If we’re lucky, we can retire at 66, 67 or 68, depending on state pension age at the time.

Personally, I expect to work to at least age 70, if I’m healthy enough to do so.

The only reason most people should consider early retirement is if they are too ill to work (as a growing number are, which is a different story altogether). Otherwise we’ll all have to go on and on.

I’m sorry to be the bearer of bad news. That’s just how it is and people need to know before even more of us make a costly mistake and retire before we can really afford to do so.