Three big problems with early retirement and how to avoid them

Many of us dream of retiring early, but for most people that is all it will ever be—a dream. But we are getting better at saving for retirement.

In its latest Retirement Report, the insurance firm Scottish Widows said its research showed that 59% of Britons are saving adequately for their future, the highest level recorded in its fifteen reports to date.

However, a recent survey by the insurer Aviva also found that 8.9 million employees aged 45 and over had no idea how much money they needed to save for a comfortable retirement.

“Millions of mid-life employees are flying blind, and fast, towards their retirement,” said Lindsey Rix, Managing Director of Savings and Retirement at Aviva.

Neither saving adequately or flying blind spells early retirement. Even if it were a prospect, though, is it wise to stop working early?

Here are three big problems with early retirement—and how you could avoid them.

You could run out of money

It’s obvious but true and the biggest problem of all. The earlier you retire, the longer you need to make your pension savings last, and if you jump into it without careful financial planning you might regret it.

To maintain a decent standard of living, you need a retirement income of around £20,000 annually at the least.

If you’re still relatively young and you plan to enjoy your retirement to the fullest, you’ll need plenty of money for travel and leisure.

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And that’s on top of all the usual costs of basic living, such as household bills, a car, and so on—assuming, too, that you have paid off your mortgage by this point.

Were you to retire at 50, you could potentially live for another four decades.

So you’ll either need large savings to keep you going, to cash in on your home equity by downsizing, or to live frugally, sacrificing luxuries for freedom.

Moreover, depending on the terms of your pension scheme, you might also not be able to access your money before you hit 55, which is the age threshold for many.

And not to mention the state pension age, which is currently between 67 and 68 depending on when you were born, which means you couldn’t collect your state pension if retiring early.

The size of your state pension is also dependent on how many years you have made National Insurance contributions.

You may not have made enough contributions if you retire early to receive the full state pension, which is currently around £8,750 a year.

But there is a middle-way. If you have decent pension savings, but not necessarily enough to live the lifestyle you want, or to last until you die, you could semi-retire instead.

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Cut down your hours, get a new part-time job, or start an easy-going small business to keep an income but also free yourself up more and ease into retirement with enough money to live how you want to.

You might get bored

There is an awful lot of time to fill every day if you’re not working and no longer have a fixed routine.

A recent survey by the National Citizen Service of retirees over the age of 45 found many described it as boring and lonely.

One in ten were bored just a few months into retirement and 27% were left with more spare time than they thought they would have.

We associate retirement with happiness but there is a genuine risk of slipping into depression and social isolation if you aren’t proactive and disciplined.

And that is the key: You need to build new routines and fill your life with rewarding activities.

Get hobbies, join clubs, volunteer your skills to help others, be involved in your community, get a part-time job—make sure you build a new life to fill the void left by the absence of employment.

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The risk of cognitive decline

We know that a natural consequence of ageing is the decline of our mental faculties.

Various studies suggest there is a link between retirement and a decline in cognitive function, such as memory, though the research on this area is still developing and its needs further investigation.

Using our brains at work, particularly in complex professional jobs, helps to keep our minds functioning and sharp.

One study published in the journal Psychology and Aging described maintaining cognitive function as “use it or lose it.”

“There was a relationship between changes in intellectually related activities and changes in cognitive functioning,” the study found.

“These results are consistent with the hypothesis that intellectually engaging activities serve to buffer individuals against decline.”

So there is the answer to the brain problem: Use it, don’t lose it.

Keep your mind active by challenging it with a degree of complexity, such as running a local community club, for example, or learning new skills, or doing some part-time work.

Keep alert with routines to your life and busy yourself. Don’t let yourself slump into the sofa everyday and watch TV. Get up, get out, and get active both mentally and physically.