Issue #030: How to know when you can retire

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WILL YOU EVER BE ABLE TO RETIRE

This week I am answering a question that someone sent me a few weeks back.

“How can anyone figure out when they might be able to retire?”

Now I know a lot of you reading this are no way near that stage of your life.

And are probably ready to stick this newsletter in the bin because it’s not relevant to you.

BUT.

Retirement planning is NOT just for people in the 50’s and 60’s.

In fact, if you can start thinking about it in your 20’s, I can promise you that the 50 year old version of yourself is going to be VERY grateful.

Shall we get through the boring answer first…

1. It’s personal.

You can either do some reading yourself, or speak to a professional financial planner to figure out if you can afford the lifestyle you want in retirement based on your current savings.

According to studies, this is how much retirement costs:

• Simple retirement: £13,000/year for 1 , £19,000/year for a couple

• Comfortable retirement: £20,000/year for 1 , £28,000/year for a couple

• Luxury retirement: £32,000/year for 1 , £44,000/year for a couple

If you can’t afford it then you have two options:

• work more

• reduce your quality of life

Okay cool, time for a bit more of an interesting way to figure it out…

2. Let’s use some maths.

It’s called the 4% rule and this how it works.

Rough estimatations state that to live continuously off of your savings for the rest of your life, you need to be able to live off just 4% of the total pot each year.

So:

Let’s say you want to live on £40k per year:

(£40,000)/0.04 = £1,000,000

Yep, you would need to have 1 million pounds to be able to follow that rule.

Why does this work?

It came from a study that found conservatively, you should expect your money to grow by at least 4% every single year, resulting in the ability to infinitely draw that amount each year from your account.

And last but not least…

3. My take

I love the 4% rule because it allows people to start imagining a goal.

It gives people a number that they can reach out for to try and achieve retirement.

Rather than constantly thinking they need more and more and will never end up retiring.

HOWEVER…

As most of you have heard me say before, personal finance is PERSONAL.

There is never going to be a single right answer.

That means that this rule should not be taken as fact, but rather as a guide, a starting point to start thinking about what number you need to reach to achieve retirement.

Neutral as ever… sorry guys 😅

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^{DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.}