About to retire
Retiring early
Can't wait to retire? Then check out these key financial considerations for taking out early retirement.
What does retiring early mean?
Retiring early allows you to enjoy activities like traveling, volunteering, picking up a new hobby, or spending more time with your grandchildren. However, it also impacts your financial income.
Gerard retired two years early.
"Retiring early meant I could finally commit full-time to volunteering at my soccer club. Together with an adviser, we crunched the numbers to see the financial impact. And luckily, it was feasible!"
Read about Gerard’s choice
This is what you need to know
Retiring early before your official retirement date will impact your pension income. You can read about what this means for you here.
When can you retire early?
Discussing early retirement with your employer is a must. Once you've reached an agreement, there are rules to follow. For instance, you may opt to start drawing your pension up to ten years before reaching your state pension age. Alternatively, you might choose to work part-time. Consult an adviser to explore all options and understand the regulations surrounding early retirement.
You will accrue less pension overall.
Retiring one, two, or three years early may not seem like a big deal after a 40-year career. However, early retirement has its consequences, typically resulting in a lower pension income. For instance, retiring two years early means two years less of pension accrual. Each year of early retirement could reduce your expected pension by about 6 to 8%. Whether you can afford to retire early with a reduced pension income depends on your personal financial situation. This includes any additional funds you might have, like savings or an annuity, and your lifestyle and spending habits.
You need to stretch your funds further.
Pension is paid out for life. If you retire early, the period over which you receive pension income is extended, as the years you stop working early are added. This happens while you build up less pension. As a result, your pension income is effectively reduced.
You're paying more in taxes.
If you retire early, it's likely you won't receive a state pension yet. Up to your statutory retirement age, you pay state pension premiums within income tax. Only after reaching this age, you no longer pay these premiums. As a result, you'll have less net pension income per month than if you retire at the statutory retirement age.
Consequences of a partner's pension
A partner's pension is a benefit for your partner in the event of your death. Opting for early retirement? This will affect partner's pension too, it will be reduced. It's wise to consider this and seek information from an adviser.
Pros & Cons of Early Retirement
Pros
- You might be in better shape, allowing you to enjoy activities like volunteering, traveling, exercising, or babysitting grandkids
Cons
- You'll accrue less pension, resulting in a lower pension income.
You may face higher taxes if you haven't reached the statutory retirement age.
Retiring early may suit you if:
- you reach your state pension age before your retirement date. You can choose to adjust your retirement date to match the date you start receiving your state pension.
- you have an older partner and want to retire together, and you have sufficient financial resources to compensate for your lower pension.
- you expect not to reach a very old age due to medical reasons, which means you'll need less pension
- you already have additional income, such as from an annuity insurance, and you value free time more than a higher pension.
And may suit you less if:
- your retirement date is significantly earlier than your state pension age, resulting in higher taxes on your pension income.
- your monthly pension income may be insufficient to cover ongoing expenses.
- you might need a loan later on, since with a lower pension income, your borrowing capacity is reduced.
- if you expect a long life, it's beneficial to maintain the highest possible pension income, especially if you face potential healthcare costs.
Deciding whether to retire early often depends on your personal circumstances. A financial adviser can provide an overview of your post-retirement finances and offer advice if desired.
1. Discuss with your employer
If you're looking to retire early, your employer can offer you a plan up until you reach the state pension age. This option is available until 2025 and is part of the Early Retirement Scheme (RVU). The allowance can be up to €2,182 gross per month, and your employer won't have to pay tax on it. With this scheme, you can retire up to 3 years before your statutory retirement age, or even less if you prefer. So, check if your employer provides this scheme. It's crucial that both you and your employer agree on the decision to retire early.
2. Check with your pension provider.
Check with your pension provider about the option to retire early. At mijnpensioenoverzicht.nl, you can see the pension you've accumulated and make your own estimate. This way, you'll have an idea of the pension income you can expect if you decide to take out your pension sooner.
Using your own money
Do you have personal savings? If so, you can tap into it to bridge the gap until your state pension kicks in. This can easily run into tens of thousands of euros. Just do the math: to retire 3 years early with a monthly living allowance of €2,500, you'll need a total of 12 months x 3 years x €2,500 = €90,000. That's a substantial amount. And remember: enjoying life during that extra free time might require more than your current living allowance. It's wise to factor this in.
Also worth noting: personal savings aren't considered taxable income. As a result, you could potentially miss out on mortgage interest deduction. So, take this into account when making your financial plans.
Pension at Zwitserleven?
Our PensioenPlanner provides insight into your financial future in just a few steps. For both you and your partner, if applicable.
4. Taking accrued leave hours.
Have you accrued extra leave hours at work? Since 2021, you can save up to 100 weeks of leave tax-free. You can use that accrued leave in consultation with your employer to retire before reaching your pension age
Partially retire
Part-time retirement
It might not be possible to retire early, but you could consider working fewer hours. Maybe you want more leisure time, but enjoy your job too much to quit entirely. Part-time retirement could be the solution. This is where you start drawing on your pension partially. You'll still work, but for fewer hours each week. The additional free time is funded by your pension savings. Check your pension scheme rules to see if your employer offers this option, or ask your employer's adviser.
Parttime
You could also consider working part-time and not yet start drawing your pension partially. This would mean a lower income and slightly less pension accrual, but the impact is relatively minor. In practice, we see many people opting for this. They simply work one day less and manage the drop in income quite well. Especially since expenses often decrease when children move out or finish their studies.
Can I retire early?
Calculate your retirement income. Explore your options.
6. Decide about other pension pots.
Have you also accrued pension through previous employers? If so, they may have different retirement dates. You can often defer or bring forward these dates as well. This way, you could have all your pension pots paid out at the same time. You can find your pension pots and their respective retirement dates on mijnpensioenoverzicht.nl. Or on the Uniform Benefit Statement (UBS) that you receive from your pension provider(s).
7. Discuss your wishes with an adviser
The choices you make now for your retirement income are for life, for you and your potential partner. Once you take out a pension, you can't change it. That's why it's crucial to get advice from an independent financial adviser. They'll look at your entire financial situation, including all your pension pots. They'll also consider other assets, like your home or savings. The right guidance from an adviser can help you make decisions that fit your goals and personal circumstances. An adviser can also work with you to figure out how much money you'll need to live on. And what the minimum net pension income should be to cover that. So you can fully enjoy your retirement later on.
Need help with this choice?
Consult an independent financial adviser. Get assistance with your decisions.
What happens if I retire earlier or later?
- State pension
- Pension
- 62
- 67
- 72
Stan, 65 years old
"My husband was already retired. So retiring early finally gave us the time to start doing things together. And financially, we can make it work, even with my lower pension income."
Frequently asked questions
You have the option to receive your pension income earlier by bringing forward your retirement date. However, you'll have to make do with a smaller amount for a longer period since you'll stop accruing pension earlier and will be retired for longer. You can retire up to 10 years before your statutory retirement age. Ensure you do this before your current retirement date, as you cannot bring it forward after that.
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