Early retirement is something most people aim for. With the State Pension age creeping up, it’s important now more than ever to take your future into your own hands. One key way to do this is to generate income now for that magical number you have in mind. Investing in top UK shares is one of my favourite ways to help achieve this goal. And the great thing about investing over time for an end goal is that you don’t need to invest a huge amount straight away. In fact, £85 a week is a good starting point.
Running the numbers
I know a few of you will be dubious as to how it’s possible to speed up early retirement with just £85 a week. So let me explain further. £85 a week is £4,420 a year. Assuming you pick top UK shares that grow on average 7% a year, and aim to retire 20 years from now, the numbers do work. For example, the £4,420 you invest in year zero will be worth £17,104 by year 20. Assuming again that you’ll have paid off your mortgage in 20 years’ time, this £17k will likely see you through a year of ordinary expenses. So you’ve already gained a year of retirement simply through £85 a week for a year.
We can then take the £85 from the second year, third year and so on and see how it builds an investment portfolio over time. Given that most brokerages allow you to invest in top UK shares with a very small minimum amount, £85 a week isn’t an issue. Your numbers should also be helped by the fact that you’re investing small amounts on a regular basis. This is known as ‘pound-cost averaging’. In theory, this should allow you to smooth out the prices at which you’re buying these stocks. So even if we see another stock market crash, your ability to invest at cheaper prices should offset the high price you paid before the crash.
Which top UK shares should you invest in?
If you’re comfortable with the numbers, you’re halfway there. Then you need to decide what to invest your £85 in each week. As you’ll be investing every week, you don’t need to worry too much about buying multiple stocks with the £85. If you’ve read a piece on The Motley Fool that praises a top UK share such as easyJet or Boohoo, feel free to invest the full £85 into it that week. You’re getting 52 opportunities a year to invest, so there’s plenty of time to mix up your investments.
You can also be tactical with your investing. For example, Lloyds Banking Group is a share some believe to be undervalued. I’m of this opinion too, although I don’t know exactly when the tide will turn. So you could invest £85 into it this week at 28p, then wait for a couple of months to invest another weekly amount. You can then keep going over several months (or even years) and hopefully benefit when the stock recovers.
So with smart investing, and a lot of patience, you really can look to speed up your retirement plans by a regular investment amount.
