What does it take to retire early?

The idea of retiring in your 50s or even your 40s sounds like a pipe-dream to most, what with increases in living costs and low or non-existent wage growth slowly eating away at your income. This hasn’t stopped the rise of the FIRE (Financial Independence Retire Early) movement, though, a new way of frugal living that targets early retirement, avoiding long working lives and living off the stock market or other supplementary income for good.

One of the most well-known experiments carried out by Stanford University is the marshmallow experiment, where a pair of psychologists gave children a choice: one reward now, or two rewards if they waited around 15 minutes. Some of the kids took the immediate reward of a marshmallow. Others resisted and managed to wait longer, entertaining themselves until it was time to collect a double reward!

Saving for retirement can be comparable to the lesson in delayed gratification, only more challenging. The children knew what reward awaited them should they be patient; most adults don’t have a clue if their nest egg will be enough for the future! When the reward is intangible or complicated, it’s even tougher to set limits now in the hope of future benefits.

So, how do you do it?

Decide what your goals are

Prepared for some serious saving? By saving £6,000 a year (equivalent to £500 a month) towards your retirement, you could trim years off your working life, depending on what your retirement goals are. Based on a 25 year timeline and annual investment growth of 3.5% (net of tax and charges), you could accumulate savings of roughly £241,000. This figure doesn’t take into account the detrimental impact of inflation and assumes payments are made at the beginning of the year.

And there’s the big question. What are your retirement goals? Do you want a comfortable yet frugal retirement? Or would you prefer to live a life of luxury, enjoying all the potential freedoms that your new found free time will have to offer? There’s a whole variety of choices available to you, and your retirement goals will help to inform you of how much you need to save and invest. A financial planner can be a great help in determining this factor as they can give you direction on what the ideal savings plan is for you.

Take advantage of saving opportunities

Various Individual Savings Accounts (ISAs) exist, all with different saving rates that can help you grow your money. The government has recently introduced a new Lifetime ISA where every £1,000 that you contribute receives a 25% bonus added by the government, up to a maximum of £1,000, which could potentially give you an extra £1,000 per year in savings. These are only available for those between 18 and 40 years of age.

Shop around

Saving money where you can on commuting, household bills, food and other regular outgoings can help to grow your retirement pot quickly and relatively hassle free. Ask yourself whether you really need that streaming service or magazine subscription. Can you find a better deal on your car insurance, energy contract or broadband? The answer is often yes.

Keep your discretionary spending under control

From small seeds of saving do sturdy trees of retirement grow. Simply put, it’s good to aim small when starting your savings journey. No more eating out for lunch, it’s time for homemade meals to be brought into work with you. That £3.50 coffee from your local coffee shop is now going to be an instant in the office. Eliminating the small daily expenses can really help boost your long term savings and help you achieve that desired early retirement. Let’s take our £3.50 coffee for example, the average UK citizen works around 260 days a year—that’s £910 a year!

Ultimately, the message is to save when and where you can. It’s about growing your savings and securing your financial future.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Pensions are not normally accessible until aged 55. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

For more information, do get in touch, we’d love to hear from you. You can call us on 01789 263888 or email hello@charterswealth.co.uk.