What does retiring five years early actually cost?
Retiring five years early costs far more than five years of salary. It removes five years of contributions, adds five years of withdrawals, and takes five years of compounding off the whole pot — three effects that stack rather than average. Against that, five years of life is the thing being bought, which is not a small consideration.
- Three effects: contributions lost, withdrawals added, and growth forgone, all at once.
- The State Pension: does not move, so the bridge to it gets five years longer.
- The scheme pension: reduced permanently if taken early, at around 4% a year in many schemes.
- The partial version: part-time work covers much of the gap at a fraction of the cost.
Tom stopped at 58 rather than 63, and the number that surprised him was not the salary he gave up. It was that his portfolio had to cover nine years to State Pension age instead of four.
01 The three effects, and why they stack
Five years of contributions at £10,000 a year is £50,000 that never goes in, and it is the £50,000 that would have had the longest to compound. Five years of withdrawals at £30,000 is £150,000 that comes out, and it comes out at the start of the drawdown when the damage is permanent.
The third effect is the one people miss. The whole pot loses five years of growth, not just the contributions — a £400,000 pot compounding at 5% real would have been worth over £500,000 by the original date, and that difference is gone whether or not anything is withdrawn.
Together these typically remove around a third of what the pot can sustainably support, which is far more than the arithmetic of five years of salary suggests.
Shows: the difference in a pot between retiring on your original date and five years earlier. Ignores: the State Pension, tax, any scheme pension reduction, and the sequence of returns.
On the defaults above, the worked example shows £225,319. The pot is £542,991 on the original date and £317,672 if you stop 5 years earlier.
Source: Plan your retirement income
02 The State Pension does not move
The State Pension arrives on the date your birthday dictates, and stopping work earlier does not bring it forward. Retiring at 62 with a State Pension age of 67 means five years of the entire household income coming from private savings, at the point the portfolio is largest and most exposed.
That bridge is usually the single largest line in an early retirement plan. Five years at £25,000 is £125,000 that has to exist before the state contributes anything, and it has to be available in a form that can be drawn — which means the normal minimum pension age matters as much as the balance.
Stopping work early also risks incomplete National Insurance years. Someone stopping at 58 with 33 qualifying years reaches State Pension age short unless they credit or buy the difference, and that is a permanent reduction on top of everything else.
Source: Check your State Pension age
03 Scheme pensions taken early
A defined benefit pension taken before its normal pension age is reduced permanently, commonly by around 4% for each year early and compounding rather than adding. Five years early therefore costs roughly a fifth of the pension for the rest of your life, and in most schemes it reduces the survivor's pension too.
That reduction does not reverse when you reach the scheme's normal pension age. It is the pension, permanently — which is why the early retirement decision is worth modelling over thirty years rather than five.
Some schemes have protected rules that allow unreduced payment at an earlier age, and redundancy sometimes triggers unreduced payment with employer consent. Both are worth asking about explicitly rather than assuming.
04 The partial alternative
Reducing to three days a week for ten years involves the same total work as stopping five years early, and it is a far better financial outcome. Contributions continue at a reduced level, withdrawals start later or smaller, and the pot keeps compounding.
It also preserves the National Insurance record, keeps an employer contribution in play, and phases the psychological transition rather than making it a single day. For most people the objection to full-time work is the intensity rather than the existence of work.
The obstacle is usually the employer rather than the arithmetic. It is worth asking before assuming, because the answer costs nothing and the difference in outcome is large.
Source: Plan your retirement income
05 Testing whether it works
Model the bridge first: annual spending, less any income that starts immediately, multiplied by the years to State Pension age. That number has to be available from accessible assets, and if it is not, the date is wrong regardless of the total pot.
Then test the whole plan at a lower return and higher inflation than you expect, because an early retirement has a longer horizon and less capacity to recover. A plan that only works on central assumptions is not a plan for a thirty-five year retirement.
And check the National Insurance record before the last payslip, because filling a gap is cheap while it is still inside the payment window and impossible afterwards.
The number that catches people is not the salary. It is that the bridge to the State Pension gets five years longer at exactly the moment the portfolio is largest and most vulnerable, and the State Pension does not move to meet you. Before fixing a date, do one calculation: spending, minus any income that starts immediately, times the years to State Pension age. If that number is not sitting in accessible assets, the date is wrong. And ask about three days a week before you ask about stopping — the same total work spread over ten years is a much better outcome and most people never raise it.
FAQ
Why does five years early cost more than five years of salary?
Because three effects stack: contributions you no longer make, withdrawals you now make, and five years of compounding lost on the whole pot. Together they typically remove around a third of what the pot can sustainably support.
Does the State Pension come earlier if I retire earlier?
No. It arrives on the date your date of birth dictates, with no early access at any reduction. Stopping work earlier simply lengthens the period your own savings have to fund in full.
What does taking a scheme pension early cost?
A permanent actuarial reduction, commonly around 4% for each year early and compounding, so five years early costs roughly a fifth of the pension for life. In most schemes it reduces the survivor's pension too.
Is part-time work a better answer?
Usually. Three days a week for ten years is the same total work as stopping five years early, and it keeps contributions, employer matching and National Insurance credits running while delaying withdrawals. The obstacle is normally the employer rather than the arithmetic.
Sources
Regulator references
- Plan your retirement income · GOV.UK · 2025The government's own sequence for turning pension pots into income.Last verified: 2026-09-07
- Check your State Pension age · GOV.UK · 2025The statutory timetable that fixes the date State Pension becomes payable.Last verified: 2026-09-07
- Early retirement, your pension and benefits · GOV.UK · 2025What taking a pension early does to benefits and to the pot.Last verified: 2026-09-07
- Check your State Pension forecast · GOV.UK · 2025The forecast service this post tells the reader to read before acting.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.