Early retirement might sound like an unattainable dream for most, but with the right approach and a well-considered plan, it is possible – and the earlier you start planning, the better.

Retiring early means you’ll be stretching your savings over a longer period of time, generally resulting in a lower income than you’d have if you continued to earn and retired later in life.

The question is whether that income will be enough to live comfortably on, and what counts as ‘comfortable’ for you will depend on the lifestyle you have now and the one you want in the future.

For business owners, the decision is even more complicated. You’ll need to look ahead to your business’s future as well as your own, and tie up any loose ends.

Once you’ve made the decision to step back from your business and plan for an early retirement, what do you need to consider?

Working out your income

A good starting point is to look at the different types of income you’ll have in retirement and balance them against what you expect to spend.

From age 55, you can access your pension savings in a number of ways, including annuity, drawdown or lump sums, with 25% of it tax-free and the rest taxed as income.

If you’re planning an early retirement due to ill health, you may be able to buy an enhanced or impaired life annuity, giving you significantly higher income than a standard one.

You’ll need to wait a while longer before you can access the state pension, as the age you can start claiming it is on the rise, with plans to increase it to 66 by 2020.

Once you have an idea of the income you can expect, the next step is to work out how much you might spend over the period of time you might need to cover.

Which? estimates that the average cost of essentials for a retired couple comes to £17,000 a year, but you’ll need to consider any additional luxuries on top of that, such as holidays and hobbies.

Retiring gradually

Another increasingly popular option is to start working more flexibly, or reduce your hours as you approach retirement.

This way, you’re not relying solely on your savings, but you can start to move away from your business at a gradual pace and enjoy some more free time.

You can draw from your pension and earn an income at the same time, but there are tax implications when you do this.

In some cases, taking money from your pension can trigger a much lower annual allowance for your pension contributions.

Talk to us if you’re thinking about accessing your pension and working at the same time.

Planning your exit

Your personal finances aren’t the only thing to consider – you also need to think about what’s going to happen to your business once you leave.

If you’re planning to pass the business on, you’ll want to leave plenty of time to train or search for your successor.

Taking a more gradual route to retirement could be one way to do this, giving you time to mentor the future business owner as you move away from the role yourself.

Alternatively, if you’re looking to sell the business on, it’s important to get your cashflow in a good position, to ensure it appeals to prospective buyers.

Contact us

Our advisers can help you to get your business’s finances in the best shape to sell or pass on, and can discuss your plans for early retirement.

Get in touch to talk about how we can help.