For those who want to retire early (and ideally rich), then it has to be worked at. A comfortable retirement doesn’t happen by itself. In fact, it’s getting ever harder to achieve.
Saving for later life is one of the most important things I can do with my money, and I reckon investing in UK shares on the FTSE 100 and FTSE 250 is the way to best way to do it. However, I understand it isn’t easy for everyone, especially for young people, who’ve a lot of other calls on their money. But to retire early, one needs to make it a priority.
Young people expect to retire by age 63 and eight months, according to new research from Hargreaves Lansdown, but they could be in for a shock. While it’s possible to retire early, it doesn’t happen by accident.
I’d like to retire early too
Older people know this. The over-55s now expect to retire on average at 67 and 11 months. One in five expect to work past 70. That’s late, and getting later. Over the past three years, the age at which older people have expected to retire has increased by 11 months. So much for retiring early, let alone rich.
The retirement age is now 66, for both men and women. But to beat that and retire early, action needs to be taken today.
Sarah Coles at Hargreaves Lansdown has listed five key steps I’d need to follow to fund an enjoyable retirement:
1. Consider what kind of lifestyle I want in retirement, and how much income I’ll need to retire early.
2. Use an online pension calculator to work out what kind of lump sum I’ll need to generate that income.
3. Dig out me paperwork and work out how much I’ve set aside so far.
4. Use the pension calculator to work out how much I need to contribute to hit my target and retire early.
5. Find out where my pension is currently invested, and how much risk I’m prepared to take.
I’d add another step. Invest like mad in UK shares, ideally inside a Stocks and Shares ISA for tax-free returns.
Start investing in UK shares now
I’d start as soon as possible. Beginning when I started work would have been best. Even £25 a month is better than nothing, although more should be saved to retire early.
Say £25 a week is put aside from age 21. By age 66, an impressive £397,477 will have been accumulated. This assumes annual long-term growth of 7% a year, the historic return on shares with all dividends reinvested.
Now let’s say the contribution is increased by 3% each year, as a salary rises. By 66, the pot should reach £598,855.
Even that hefty sum may not be quite enough to help investors in a bid for early retirement. But with luck, a workplace pension would be added on top. I wouldn’t hang around though. Thanks to the stock market crash, there are plenty of bargain UK shares to choose from.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.