Early retirees are happier, but there can be a price to pay

In the middle of winter, when it's cold and dark outside but you still have to get up for work, early retirement is a tempting prospect.

But before you set a date, it's important to think about the sort of lifestyle you want in retirement and how you will achieve it.

New research from Aviva shows that while most people report an increase in overall happiness as a result of retiring early, almost half see a hit on their finances.

With the state pension age currently standing at 66, one in six (17%) people who have taken early retirement did so when they were 60. This is also the most popular target age for people who intend to retire early in the years ahead, with one in four (25%) planning to celebrate their 60th birthday by leaving work behind.

Another one in five (20%) people targeting early retirement plan to stop working at 55 -- perhaps because that's the age when they can first access their pension savings.

Why do people want to retire early?

The desire to retire early is primarily driven by "wanting to enjoy more freedom while still being physically fit and well enough to enjoy it", the survey found. Being in a financially stable position is the second most common factor prompting early retirement.

Other reasons why people seek early retirement include reassessing their priorities and what's important to them in life, wishing to spend more time with family, or finding they are either "tired and bored" of working or find it "too taxing and stressful".

Generally, people who have retired early said they were happier, had better relationships with family and friends, and had improved mental and physical wellbeing.

However, 47% of early retirees said their finances had worsened. Women were more likely to have felt a negative financial impact -- 50% vs 44% of men retiring early. Only 22% of early retirees feel they have benefited financially from their decision to stop work early.

How people retired early

One in three of those who have retired early said that having a defined benefit (final salary) pension was among the main reasons why were able to give up work early. This suggests that the dream of early retirement may get harder for younger generations to achieve, with the majority of the private sector workforce now saving into defined contribution schemes, Aviva said.

However, there are positive steps you can take. Other measures that enabled people to retire early or think about retiring early include paying off your mortgage, saving little and often, and saving extra whenever you receive a pay rise or bonus.

A recent survey by Which? found that retired households with one person spent an average of £19,000 a year and households with two people spent an average of £26,000 a year. As well as all the basic areas of expenditure, this covers some luxuries, such as European holidays, hobbies and eating out.

Research by the consumer group shows that those aiming for a £26,000 income will need £265,420 saved to buy an annuity from a money purchase or defined contribution pension or £154,700 if opting for income drawdown.

"The experiences of people who've already reached early retirement show that small savings habits, which add up over time, are every bit as important as big gestures such as putting aside any year-end bonus," said Alistair McQueen, head of Savings & Retirement at Aviva.

"It's also important to learn from the lesson that, while happiness soars in retirement, many people find their finances take the strain when they retire early and money worries are one of the biggest factors resulting in people returning to work. If you aspire to retire early, it's vital you plan your finances to be sustainable for the long term."