I’m a money expert – the little-known bank account that could help you retire early

Helen Morrissey of Royal London Asset Managers. Photo by Michael Walter/Troika

BRITS planning their retirement could do so early with a little-known bank account, experts have revealed.

Thinking about retiring can be stressful, especially if you’re worried about how much cash you’ll have to fall back on.

We spoke to the experts about how a LISA could help you retire early

Money experts at Hargreaves Lansdown (HL) have revealed how a Lifetime ISA – or a LISA – could actually help you retire earlier than planned.

LISAs can be a good alternative or addition to pensions for retirement planning.

A LISA can be opened by anyone aged between 18 and 39.

You can use it to save up to £4,000 a year, towards either a first home or retirement.

Savers with a LISA will get a bonus of up to £1,000 a year on top from the government – or 25% of whatever you put in. 

While you can only open a LISA up until 40, you can add to it until you’re 50.

Then you can access the full amount at 60 – six years before state pension age and five years earlier than some personal pension or workplace pension ages.

It means that according to HL it can be a good way to “bridge income between the age of 60 and state pension age” if you’re looking to fully or part-retire early.

Retirement expert Helen Morrissey at HL told HOAR: “If you are aged under 40 then a LISA could play a major part in your retirement planning.

“The 25% bonus is a significant uplift to your savings, which over time and added to long-term investment growth could see you accumulate a tidy sum.”

The firm found that paying £1,000 a year into an investment LISA from the age of 18 could end up with £104,000 by the time the saver turns 50.

Even though you can’t contribute after the age of 50, compound investment growth over the next ten years could see savers build up around £169,000.

Plus, the more you contribute the more you’d wrack up by the time you hit pension age – which is currently 66 for men and women.

In 2022, HL clients benefited from £61million of investment LISA bonus payments from the government.

What are the pros and cons of a LISA for a retirement plan?

Helen explained that LISAs can also be an attractive alternative to pensions for groups like self-employed who are not covered by auto-enrolment.

She said: “The 25% bonus boosts their retirement saving in a similar way to basic rate tax relief and for those who don’t benefit from an employer contribution then it’s an option worth considering.”

Another benefit of opting for a LISA instead of or in addition to a pension is that you can actually access it in times of financial stress – an option that isn’t available for pensions.

This means that if something goes wrong or you need a cash boost, you can actually take your money out of the account.

Although, a major drawback to this is that you will be hit with a 25% penalty charge which means you’ll lose your government bonus and a chunk of your savings.

Another thing to consider is that due to the age restrictions on when you can take a LISA out and when you can contribute to it – you’re limited on how much you can put in over the lifetime of the account.

This is particularly important to note if you’re expecting to reach your peak earning potential in your 50s – such as when you reach a higher level in your career.

It means that you could be earning the most you’ve ever earned and you won’t be able to put it into your LISA.

In that circumstance, it could be worth having either a work place or a personal pension too.

Whether you take out a LISA or top of a pension or just have it on its own will be determined by your own financial situation and priorities, Helen explained.

Someone looking to use a LISA to buy their first home may be better off with a cash LISA which will gain interest as well as the 25% bonus.

Whereas those who are looking to the future may benefit from an investment LISA instead because they could wrack up investment growth over the long term.

If you’re unsure of your options or are looking to clear up any questions regarding a LISA, it’s best to speak to a financial expert.

Meanwhile, Martin Lewis recently warned first-time buyers to take advantage of the tax year ISA allowance by April 5.

HOAR recently spoke to a couple who withdrew money from their Lifetime Isa too soon, which meant they forfeited their 25% government bonus.

Do you have a money problem that needs sorting? Get in touch by emailing [email protected]