How to retire at 60

For many people, 60 represents a realistic balance between retiring early and having enough time to build substantial retirement savings.

You still get to enjoy more years away from work, but you’re close enough to State Pension age that the financial challenge is far less intimidating than retiring at 45 or 50. But how much money would you actually need to make it happen?

In this article, we look at how much you might need to save to retire at 60, based on your current age.

This is the final instalment in our four-part series on retiring early. The other articles in the series are:

• How to retire at 45
• How to retire at 50
• How to retire at 55

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How much income will you need in retirement?

One of the first questions to answer when planning for retirement is how much you expect to spend.

Predicting spending decades in advance is difficult. Your expenses are likely to change over time and there may be unexpected costs, such as care fees later in life.

To keep things simple, we have used the Retirement Living Standards produced by Pensions UK. These estimate the cost 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

Someone who starts saving in their early 20s benefits from one of the most powerful tools in investing: time.

We looked at a 21-year-old earning £50,000 on average throughout their career. While this is higher than many people earn at that age, we have assumed earnings remain broadly level throughout their working life for simplicity.

We estimate they would need to contribute £50 a month into a stocks and shares ISA and 16% of their salary into their pension, including employer contributions, to retire at age 60 and enjoy a moderate retirement income.

Under our assumptions, this could allow them to build an investment portfolio worth a little over £2m by age 60. Our modelling suggests this could provide enough income to support a moderate retirement lifestyle until age 100, with around £700,000 potentially left over. This shows the powerful effect of long-term compounding when savings are invested over almost 40 years.

Because retirement is much closer to pension access age, ISA savings do not need to do as much of the heavy lifting as they do in the earlier retirement scenarios.

• 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

Starting at age 30 still leaves plenty of time for investments to grow.

In this scenario, we looked at a 30-year-old earning £50,000 who already has £30,000 in a stocks and shares ISA and the same amount in workplace pensions.

We estimate they would need to contribute 18% of their salary into their pension, including employer contributions, to retire at 60, enjoy a moderate retirement and not run out of money before age 100.

This could allow them to retire with an investment portfolio worth approximately £1.5m and still potentially have around £300,000 remaining by their 100th birthday.

Compared with someone targeting retirement at 45 or 50, the contribution requirements are likely to be considerably lower because there is more time for investments to grow and fewer years of retirement to fund.

Starting age 40

For someone starting at age 40, retirement at 60 may still be achievable, although they are likely to need a meaningful amount already saved.

In this example, we assumed a salary of £50,000 and existing savings of £60,000 in an ISA and the same amount in workplace pensions.

To retire at age 60, they would need to contribute 25% of their salary into their pension, including employer contributions. Under our assumptions, this could allow them to retire with around £1m invested. Our modelling suggests this should support a moderate retirement lifestyle and potentially leave around £170,000 by age 100.

If they had more already saved by age 40, they would need to contribute less. It all depends on how much you have to begin with.

Starting age 50

Even someone who only begins actively planning for retirement at age 50 may still be able to retire at 60, although the challenge becomes greater.

With just 10 years remaining until retirement, there is less opportunity for investment growth to do the heavy lifting. As a result, existing savings become particularly important.

For this example, we assumed a 50-year-old earning £50,000 who already has £130,000 in ISA savings and £130,000 in workplace pensions.

To retire at age 60, they would need to contribute 34% of their salary into their pension, including employer contributions. This could allow them to retire with a portfolio worth around £760,000. Our modelling suggests this should provide sufficient income throughout retirement - although they may only have around £12,000 remaining by age 100.

Saving more than a third of your salary into your pension is a tall ask. You could save less aggressively if you had a generous employer who contributes more than the minimum into your pension or if you started with more already in ISAs and pensions by age 50.

While the contribution levels may still be significant, retiring at 60 is far more achievable than retiring a decade earlier because the retirement period is shorter and access to pension savings is immediate.

The bottom line

Retiring at 60 is still an ambitious goal, but it is likely to be achievable for far more people than retiring at 45, 50 or even 55.

Our modelling suggests that those who start saving early may be able to reach this target without making the extreme sacrifices required for very early retirement. Even those who begin later may still have options if they already have meaningful savings in pensions and ISAs.

The key lesson from all four articles in this series is that time matters. The earlier you begin saving and investing, the more flexibility and choice you may have over when you eventually stop working.

Even small increases to pension contributions can make a meaningful difference over time. Fidelity's Power of Small Amounts calculator 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 illustrative only and based on a specific set of assumptions. Your own retirement plans will depend on your income, spending goals, investment returns and personal circumstances.

Whether your target is 45, 50, 55 or 60, the message is the same: the sooner you start saving, the more options you'll give your future self.

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 50
• Read: How to retire at 55

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.