How to retire by 50

Here’s how you could retire a lot sooner than you previously thought.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the main goals for many people is to retire at a relatively young age. The stock market provides an opportunity to do just that. Although it may take many years to achieve enough wealth to retire, doing so after 30 years of working full time is a realistic prospect.

Start young

The key to retiring by the age of 50 is to start investing at a young age. In fact, starting with your first job, it is crucial to save and invest even a small amount each month. This allows compounding to have an even bigger impact on the value of your portfolio over an extended period of time.

For example, investing for a 30-year period versus a 20-year period makes a huge difference to your portfolio value. Assuming an 8% total return per annum would equate to a total return over 20 years of 4.7 times the original value invested. However, investing at the same rate of return for 30 years would cause the total return to rise to over 10 times the original value. Therefore, in order to increase your chances of retiring by 50, it pays to start as young as possible.

The right stocks

Clearly, investing for a long period will be fruitless if all of your stocks perform poorly. That’s why it is important to have a mix of shares which offer growth and income prospects.

During a 30-year period there will inevitably be boom and bust periods. Therefore, there will be times when it makes sense to buy higher-risk growth shares, which could offer significant capital gains. But there will also be periods where more defensive, higher-yielding shares provide better returns thanks to their perceived safer status among investors.

As a result, it is logical to have a mix of growth and income shares in a portfolio. Various studies have shown that the majority of investment returns in the long run are derived from dividends. While they may lack the excitement of growth shares, dividend stocks should still form part of a portfolio which is focused on early retirement.

Discipline

It is difficult to set aside an amount each week or month for retirement. For starters, retirement feels like a very long way away for most of your life. Therefore, spending today and living in the moment seems like a better way to spend your hard-earned cash. However, the reality is that retirement will almost certainly come along for all of us. It therefore makes sense to plan for it and to make sure it is as enjoyable as possible.

This planning takes discipline since there is always a temptation to spend on cars, holidays, and other consumables today. However, by investing generously in terms of the proportion of your income today, it is very possible that by the age of 50 you will no longer need to work to afford an abundant lifestyle.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »