Working towards a future free of the nine-to-five

Quitting the nine-to-five is the ultimate dream for many, a chance to fulfill a lifelong ambition or simply spend more time enjoying life. But the one thing that often holds us all back is lack of money. However, quitting the rat race is often a lot more achievable than you might think. Some careful planning really can make it possible to transform your lifestyle and regain control of your life.

Why it pays to plan ahead

Figures from HSBC show that if a 21-year-old pays £75 a month into a stakeholder pension, they could achieve a retirement fund of £337,000, which would buy a pension of £12,700 a year in retirement. However, if they wait until 30 to start contributions of the same amount, they would have a fund of just £171,000 or £6,470 a year in retirement.

The best way to plan for your new lifestyle is to decide what age you would like to retire at and what kind of lifestyle you would like to have. "Will you want to be able to take lots of luxury holidays and treat the grandchildren?" asks Andy Parsons, advice manager at the Share Centre. "Or will you be happy with a more modest lifestyle? Then work out how much maintaining this life­style will cost you in today's value."

For example, if Mr Jones wants to retire at 50 and estimates that the lifestyle he wants will cost around £12,000 a year, considering that the current average life expectancy for men is 77 and that Mr Jones is a healthy non-smoker, he will need at least £324,000 to fund his desired lifestyle.

When thinking about the cost of your new life, bear in mind that you could well be mortgage-free by this point and your children may no longer be financially dependent on you. Also take into account your eligibility for the basic state pension and consider whether you'd like to continue earning in retirement. "Once you have the figure, you need to work backwards to the present day and devise a strategy to achieve it," adds Parsons.

Be realistic in your goals and strategy

If quitting the rat race early is your ultimate goal, you may need to accept a degree of compromise. However, compromise doesn't have to be a negative thing, explains Tony Clack, founder of, who retired early from his career in IT at 54 to start his business helping people with the transition from employment to retirement.

"It's just a case of thinking about what you want to achieve and what you are prepared to do to make it happen," says Clack. "You may think you want to take lots of luxury trips overseas, but if achieving this means you'll need to take on some part-time work, you'll either rethink this ambition or happily go out to work to achieve it."

Pensions are the most obvious method of saving and should form the foundation of your strategy for quitting the rat race. "Despite receiving a lot of bad press, pensions are a good savings vehicle," says Parsons. "A lot of people don't quite understand that the tax benefits of pensions actually help to grow your money."

If your employer offers a pension scheme, contributing to it should generally be a no-brainer, says Philip Pearson, partner at financial planning consultants, P&P Invest in Southampton. "You'll normally receive a boost to your retirement savings because your employer will also contribute to the scheme on your behalf," explains Pearson.

"As a guide, a minimum of 10% of your salary needs to be saved each month over your working career. If you are putting less than this away, you need to top up today."

Self-invested personal pensions (SIPPs) are also a good way to build a fund for retirement. A SIPP is a tax-efficient pensions account where you can hold shares, funds and cash.

"SIPPs are a wonderful vehicle because they allow a great deal of flexibility in what you can invest in," explains Parsons. "However, SIPPs require time and effort, and their charging structure makes them more expensive than stakeholder and private pensions."

Mix and match

It's important to build up investments to compliment your pension. "This is particularly important if you want to retire early, because you can't access a pension until age 55 and you really want to put off dipping in to it for as long as possible to allow it to grow," says Parsons.

ISAs are good because your savings can grow tax free, and unlike pensions, which are subject to income tax, you can withdraw from an ISA anytime free of tax. Under current rules, you can invest a total of £7,200 in an ISA during 2008/09, of which £3,600 can be kept in a cash ISA.



"A lifetime of saving into an ISA will provide a significant step towards financial independence and achieving early retirement," adds Pearson.

Boosting your income

Mortgage repayments are most people's biggest monthly expense, so shedding this hefty debt is likely to be the single biggest step to boosting your finances and an early retirement.

If you have a lump sum in savings it can be tempting to pay off your mortgage, but Francis Klonowski, director of financial planning consultants Klonowksi and Co, advises caution. "You can borrow to buy a house but you can't borrow to fund retirement," he explains. "I'd advise keeping your savings as liquid as possible instead of locking it all up in property. You may find you'll need the money later and it will be more expensive to access."

Your house can be part of your retirement strategy too, says Klonowski. Downsizing is a good way to boost your retirement income.

If you can't afford to quit the nine-to-five, consider reducing the hours or starting something new. Working into retirement is becoming more common, not just for the financial aspect but to remain active and busy. While quitting the nine-to-five is an exciting prospect, it can also be quite daunting.

"Your life often goes from having a lot of structure to none at all," explains Clack.