What five years of early retirement actually costs
Retiring five years early is usually described as a trade against your pension pot. It is really a trade against three things at once — and that is why the odds move so much more than people expect.
The question
Most retirement-age advice is directional: later is better. That is true but useless. What a 50-year-old actually wants to know is how much better, in terms they can weigh against five years of their life. So we held one saver's circumstances constant and changed only the retirement age.
Assumptions used
- Age today / retiring at / plan to
- 50 / 60 / 95
- Starting portfolio
- £400,000
- Annual contributions until retirement
- £12,000
- Retirement spending from the portfolio
- £32,000 a year, today's money
- Guaranteed income
- £11,500 a year from age 67
- Expected return / inflation / volatility
- 6% / 2.5% / 13%
- Simulation
- 1,000 runs, returns drawn at random each year
- Only the retirement age changes between runs. Spending, contributions, returns and the planning horizon are identical.
- State Pension starts at 67 in every run, so the earlier retirements carry a longer bridge period.
Taxes, platform charges and changes in spending through retirement are not modelled. Figures are illustrations produced by the Retiris model, not predictions.
The results
| Scenario | Runs that lasted | Median years funded | Typical shortfall age | Steady projection |
|---|---|---|---|---|
| Retire at 55 | 32% | 28 | 75 | Runs out at 89 |
| Retire at 60 | 63% | 35 | 84 | £630,903 left at 95 |
| Retire at 65 | 86% | 30 | 89 | £1,304,012 left at 95 |
Median simulated balance by retirement age (today's money)
Why the effect compounds three ways
The obvious cost is the contributions you stop making — five years at £12,000 is £60,000. The second cost is that those contributions, and the balance you already had, lose five years of growth at the point in life when the pot is largest and compounding does the most work in absolute terms. The third and largest cost is on the other side: retiring at 55 rather than 60 adds five more years of withdrawals, and those five years sit right in the sequence-risk window.
Put together, the difference between retiring at 55 and 65 in this plan is not "a bit less money". It is the difference between a plan with comfortable slack and a plan that depends on markets behaving.
The bridge to guaranteed income
The earlier you retire, the longer your portfolio funds 100% of your spending before the State Pension or Social Security arrives. At 55 that bridge is twelve years; at 65 it is two. The bridge is where most early retirements fail in our model, not the far end of the plan.
This also means the fix is not always "retire later". Anything that shortens or lightens the bridge — part-time income, a smaller mortgage, a couple staggering their retirement dates — moves the odds in the same direction as working five more years, at lower personal cost.
What one extra year is worth
Use the explorer below to move the retirement age a single year at a time. In most plans the first two extra years buy more improvement than the next three, because they combine the last high-balance compounding years with the removal of the riskiest withdrawal years.
Find your own break-even age
Everything else stays as set out in the assumptions above.
In this model, under these assumptions. Not advice, and not a forecast.
How to use this
- Model your own three ages before deciding. The shape of the curve is personal — a large guaranteed income flattens it, a high spending level steepens it.
- Compare "retire at 55 fully" with "retire at 55 with £10,000 of part-time income to 60". The second often scores like retiring at 60.
- Treat the success rate as slack, not as probability of ruin. A plan at 75% is not doomed; it is a plan that will need adjusting.
- Re-run it every couple of years. Retirement age is a decision you get to keep making.
Sources
- GOV.UK — The new State Pension
- SSA — Early or late retirement
- MoneyHelper — When can I take my pension?
Modelled figures on this page were produced with the Retiris retirement model, described in full on how the model works. They are illustrations of hypothetical scenarios, not research findings about real households.
Related analysis
Retiris publishes educational planning tools and analysis. Nothing on this page is personalised financial advice, and modelled scenarios are illustrations rather than predictions. See our editorial methodology and disclaimer.