Work an extra five hours a week and make over £400k!

One thing that most working people would like is an opportunity to be financially free in retirement. However, it may seem at times as though the cost of a mortgage, commuting, cars and other bills mount up to such an extent that it becomes almost impossible to save up for an enjoyable retirement. And with the retirement age constantly creeping upwards for both men and women, it sometimes feels as though retirement will be shorter and less abundant than many people had imagined – even a few years ago.

However, this may not be the case. There’s a way of generating an extra £400,000 over a working life by simply working five hours extra a week. Clearly, five hours may sound like a lot of work, but it represents just 14% of the standard 35-hour working week. And when the return over a 40-year period could be as much as £400,000, many people may feel that it’s well worth the extra effort.

Remember to invest

The figures depend on two assumptions that are relatively conservative. The first is that an individual is paid the minimum wage for those five hours of work. He/she is then taxed at the basic income tax rate of 20%, plus National Insurance contributions of 12%. The second assumption is that the amount earned is invested in the stock market and that it generates an annualised return of 9% over a period of 40 years.

Clearly, there’s scope for an individual to earn a higher pay rate than the minimum wage. However, the calculations show that anyone who’s willing to work an additional five hours a week in any job in the UK has the opportunity to be £400,000 richer when they retire.

In addition, there’s the potential for much higher returns from the stock market during the 40-year period. The 9% per annum return figure used is simply the annualised total return from the FTSE 100’s inception in 1984 to the present day. With the index having a yield of just under 4%, it seems to offer excellent value for money at the present time. This indicates that there could be higher returns in the long run, which would clearly cause the £400,000 figure to increase significantly.

FTSE 250

In fact, investing a portion of the amount earned each week into the FTSE 250 as opposed to the FTSE 100 could be a sound move. That’s because the FTSE 250 has delivered capital gains of 215% over the last 17 years, while the FTSE 100 has been flat. And with the FTSE 250 offering diversification benefits, it seems to be a sound long-term buy alongside the FTSE 100.

Of course, there are no guarantees that 9% per annum growth will be recorded and the £400,000 figure may not be achieved. However, by giving up just five hours per week, history tells us that it’s very much on the cards.

With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called 5 Shares You Can Retire On.

The 5 companies in question offer stunning dividend yields, have fantastic long term potential, and trade at very appealing valuations. As such, they could deliver excellent returns and provide your portfolio with a major boost in 2016 and beyond.

Click here to find out all about them – it's completely free and without obligation to do so.