There are now hundreds, if not thousands, of internet blogs, YouTube videos and dodgy Facebook pages, that all talk about retiring early. Normally with the tag line ‘How I retired at 40’ or ‘it’s so easy, anyone could do it’. I am here to explain what the method is and why this probably isn’t for you.

So how can this become a reality?

The Goal

As a loose rule of thumb, a 4% per annum withdrawal from a balanced and diversified investment could potentially be sustainable. So, if you take your annual expenditure and multiply this by 25, this will be how much money you will need to have invested, to potentially sustain a retirement.

For example, in theory, if you wanted to retire with £20,000 per annum before taxes, you will need to have £500,000 of invested capital first. However, this is not guaranteed, and retirement is a very long time if you are retiring early.  If one thing goes wrong, you could potentially be left scrabbling for more.

So, a quick calculation on how much money you can afford to put away every year and you will be able to work out how many years until you can retire. Just remember that the figure will need to go up by inflation every year you wait too, and inflation is currently 5.5%. This is because inflation is a generic marker for the cost of things rising, so as costs rise, you will need more money than you originally did, to buy the same amount of stuff.

Earn Hundreds of Thousands of Pounds a Year

Pretty simple really, if you are raking in massive amounts of money each year and putting this away, you can soon knock out the money you need to retire. However, people who earn more do tend to spend more as a result, so the formula is not guaranteed.

Never Spend a Penny More Than You Have to

Of course, it is easier to retire if you have no expenditure at all to cover. Basic perfunctory food, second hand clothes if you can’t get them for free, tiny flat to live in for cheap mortgage/rent, if you don’t just live at home with your parents, heating is an absolute “no no” and forget about any sort of entertainment.

You only then must stick to that for the rest of your life and you could afford to not work fairly soon in the future… Bit boring though.

How Early is Early?

As you can see above, it is a lot harder than it looks to achieve these things and people end up chasing things like Bitcoin and high-risk stocks, in search of that silver bullet that will get you there without all the hard work. Unfortunately, this can often lead to the opposite and being worse off than when you started.

So rather than shooting for the extreme, why not just shoot for the minimum. From April 2028, the minimum age that you can take your pension is age 57, currently is age 55, which is well before most people will retire and provides you plenty of time to try increase your salary or cut some costs, for a more gradual, but still quick, accumulation of funds.

Sound more compelling than the alternatives? Then I suggest you…

Give us a Call

For more information, contact us here.

We are independent Financial Planners, and our job is to encourage this positive change and to make sure that what you do put away is working hard for you behind the scenes, so that you can ‘retire early’, whatever that means for you.

A pension is a long term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Fusion Financial Ltd is an appointed representative of In Partnership the trading name of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority. Fusion Financial Ltd. Registered in England and Wales No 11600565. Registered Office: Marlborough House, 298 Regents Park Road. Finchley London N3 2SZ.

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