How to retire at 50

Retiring at 50 is a goal that appeals to many people. By this stage, careers are often well established and financial responsibilities may be beginning to ease, making the prospect of stepping away from work increasingly attractive.

However, retiring at 50 still means funding a potentially lengthy retirement and bridging a significant gap before reaching State Pension age. In this article, we look at how much you might need to save to make it possible, based on your current age.

This is the second in a four-part series on how to retire early. The other instalments are:

• How to retire at 45
• How to retire at 55
• How to retire at 60

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How much income will you need in retirement?

One of the first questions to answer is how much you'll spend in retirement.

Predicting spending post-work is tricky, especially when your retirement date is well into the future. It’s also likely to fluctuate over time and there could well be unexpected expenses, like care costs.

To keep things simple, we have used the Retirement Living Standards created by trade body Pensions UK. These estimate the costs of different lifestyles in retirement.

A “moderate” lifestyle once you stop working is estimated to cost £32,700 a year in today’s money. This is for a single person and includes:

• a three-year-old small car (replaced every seven years)
• a fortnight-long, three-star, all-inclusive holiday in the Mediterranean and an off-peak long weekend break in the UK each year
• around £59 a week on groceries
• £110 a month to take others out for a monthly meal

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Starting age 21

If you want to retire at 50, it’s important to start as early as possible to give your investments time to grow. We looked at someone aged 21 and earning £50,000 on average throughout their career.

As we noted in the previous article in this series, this is high for a 21-year-old, but they could well earn more later in their career, so we have assumed a constant salary throughout for simplicity.

We estimate that they would need to put away £500 a month into a stocks and shares ISA and 22% of their salary into their pension to be able to meet their goal.

Depending on investment returns, this could allow them to build up an investment portfolio worth around £1.8m by age 50. This could allow them to draw an income to fund a “moderate” lifestyle in retirement without running out by age 100. By that age, they could still have around £550,000 left.

They may not need to contribute the entire 22% of their salary into their pension themselves. Most employers will contribute at least 3% and some generous ones will put in more.

It’s important our 21-year-old does not overlook their ISA savings. While contributions to a workplace pension benefit from a tax relief uplift, under current rules these are not generally accessible until age 55 (rising to 57 from 2028) and so ISA savings are crucial for bridging the gap.

• Explore our award-winning Stocks and Shares ISA and Self-Invested Personal Pension

Assumptions

The figures above are based on the following assumptions:

• Inflation averages 2.5% a year.
• Investments are held in a high-growth portfolio returning 6.61% a year until retirement. After this point, assets move into a moderate-growth portfolio returning 6.45% a year.
• Annual fees of 0.41%.
• The individual receives the full State Pension, which increases with inflation.

These assumptions remain the same throughout the following scenarios.

Remember that these examples are illustrations rather than guarantees. Investment returns, inflation and future spending needs may differ significantly from those assumed here.

Starting age 30

If you start later, say at age 30, it will be much harder unless you already have money set aside.

We looked at a 30-year-old on a salary of £50,000. They have £60,000 in a stocks and shares ISA and £60,000 in a workplace pension.

We estimate that, for them to stop work at 50 and not run out of money by age 100, they would need to invest £500 a month into their ISA and 26% of their salary into their pension (including employer contributions).

By age 50, they could have built up a pot worth £1.36m that would allow them to enjoy a moderate retirement and potentially still have around £450,000 left by the time they turn 100.

This level of saving is not easy, and our 30-year-old would need to exercise strict financial discipline to achieve their goal. 

Starting age 40

At age 40, you’d need even more money set aside to make retirement in 10 years’ time realistic.

A 40-year-old earning £50,000 would need to save 27% of their salary into their pension (including employer contributions) to achieve this goal. This assumes they already have £200,000 in a stocks and shares ISA and the same amount in workplace pensions.

This could allow them to build an investment portfolio worth almost £1m by age 50, which our modelling suggests could support a moderate retirement income until age 100. They may even have around £140,000 remaining by the end.

Saving £400,000 into ISAs and pensions by age 40 is no mean feat and, for some people, may only be possible if they receive a generous inheritance.

Remember: these examples are illustrative only. They are based on a specific salary, savings level, investment return and retirement income target. Your own circumstances may be very different.

The bottom line

Retiring at 50 is more achievable than retiring at 45, but it still requires significant savings and careful planning. While our modelling shows it can be done on a £50,000 salary, doing so means putting aside a large proportion of your income and building enough ISA savings to support yourself before you can access your pension.

The earlier you start, the easier the challenge becomes. Giving your investments decades to grow can dramatically reduce the amount you need to save later.

You can see for yourself the impact even small increases to pension contributions can make over time using Fidelity's Power of Small Amounts calculator. This tool allows you to see how much adding an extra 1%, 2% or more to your pension contributions today could boost your retirement savings by age 68.

These examples are based on a range of assumptions and should be viewed as illustrations rather than guarantees. Your own retirement target will depend on your income, spending plans, investment returns and personal circumstances.

Got a burning question you want to ask? Why not drop us a line. Click here to ask your question.

• Read: How to retire at 45
• Read: How to retire at 55
• Read: How to retire at 60

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.