How to Retire Early – Not!

How to Retire Early in the UK

I love to read FI and PF blogs and news articles extensively. Usually, I find them pretty good. Even if they’re just short snippets or trading updates, it’s still interesting to see other points of view and note which stocks are being bought by the FI community. However, one article on early retirement that I read recently really struck me… for all the wrong reasons. This piece of writing appeared in The (London) Telegraph’s Investor section online, which is usually fairly interesting and often can be very useful. However, this piece riled me something rotten. I was really looking forward to reading it, given its interesting subheading:

It may take some “extreme financial planning” but knocking off a decade early can be done. Just.

I immediately lost all that nice anticipation of looking forward to reading something good. My thoughts changed to: ‘Are you kidding me? After “extreme financial planning”, I can only retire at 57? That doesn’t even seem quite worth the hassle. This is more like how to retire early – not!’ But of course, as I read the article, it turned out that there was no “extreme financial planning” whatsoever. Sadly, this was unsurprising. You just don’t get real articles on “extreme financial planning” in the mass press (I guess that’s why we’re all on the internet, blogging about our beloved FIRE instead!).

However, what I was not prepared for when reading this article, was just how bad it really was.

Here are the figures the article quotes:

Person has: £43,000 annual salary (£30,325 after tax and assumed 6% pension contribution)

Person wants 2/3 of this in retirement = £28,000 (£22,127 after tax)

First of all, £28,000 is not 2/3 of £43,000 – £28,667 is. And the same goes for the after-tax income – £20,217 is 2/3 of £30,325. £1910 extra per year is quite a lot of money! The article does not state whether the person is married, or has kids – which obviously could affect his/her income and tax situation quite dramatically. The article also does not state what kind of mortgage the person has, nor what interest rate they’re paying. All we know is that they’re 38 years old, and they’re due to finish paying it off in 19 years i.e. by age 57.

Clearly this article is not exactly a winning piece on FIRE! We do not know anything about the person’s career path/profession, expenses, hobbies, or lifestyle, so we can’t even see what they’re trying to work with as their example of “extreme financial planning”! To top it off, the imaginary person has magically become 36 years old by the end of the article! Given our backwards-aging fictitious person and his/her post-tax income of £2,527 per month, this Benjamin Button impersonator can probably afford to save a massive proportion of his/her net salary and retire a lot earlier than 57.

Let’s just say that this person actually decides to do some more serious financial planning, and not even an “extreme” version. They cut their expenses down to a frugal(ish) lifestyle of £1200 in outgoings per month – which is not really that frugal for a single person, and is in no way “extreme”, especially when you compare to Jacob from Early Retirement Extreme, or even our more local (and not very extreme) Huw from Financially Free By 40 who has managed to get his expenses down to <£900 per month.

So this expense-cutting leaves our imaginary person with £1327 per month to invest – a pretty hefty sum. Assuming a 5.5% real rate of return, this monthly amount would turn into a whopping £609,278 (including the £30k he/she already had) after the original 19 years until age 57 (if he/she was 38, not 36!!!) He then also has a paid-off mortgage and access to his pension scheme. That £609,278 on its own would fund a £28,000 annual income (no tax assumed – he has been clever and stuck it all in a NISA) for almost 22 years… or if we assume more realistically that his investments with continue to grow at 5.5%, and inflation is 2% on average, then the £609,278 would last him 39 years and 2 months i.e. he will be 96 when it runs out. Oh but by the way – that pension scheme has not been touched! So he actually won’t have run out of money after all…

So this rotten article (Ed Monk, how could you?!) is not interesting OR useful as I have come to expect from The Telegraph Investor… but it is perhaps a pointer as to what many people out there might think is “extreme” in terms of managing your finances. Is this why there is so much of a consumer debt problem, and so much of an instant gratification problem in our society? Is this why people regularly spend money on lunch for work every day, and then complain they can’t afford to pay into their pension? Do excuse me if this seems a bit rantish, I feel sorry for these people, I’m not angry at them. And I don’t care what they spend their money on, as long as they don’t complain afterwards that they’re annoyed at having no money! Actually, if they’re wasting it on cigarettes, then yes, I do care and they only have themselves to blame…

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  1. Hi M,
    As others have said, it a bad illustration on how to retire early – but then :
    1) Government don’t want people to retire early. They need the taxes and want us to be indebted.
    2) Consumerist society is the ‘drug’ that everyone is hooked to. Everyone is made to think that status comes from possessions and trinkets, that these will provide happiness…..until the next upgrade or model is released!
    3) Consumerism is rife and the media is full of advertising of lifestyles and aspiration goals. If you don’t have the right product, then you have no status or worth in society.
    4) Too many people just don’t understand how to manage their money.
    5) Financial products are made to look complicated….. It is so easy to get a loan, but getting a decent pension or investment account?
    6) Government policy – all about spending and not about saving – for the population any way!

    1. I agree with points 2 to 5, but not with 1 and 6. This is because the government actually do encourage investment, which brings them tax revenue from businesses and helps more people to be employed. Moreover, if we were already retired, whatever we’re buying (apart from food) is getting them 20% VAT anyway. Re no. 6 – government policy is not about spending at all, it is about cutting the deficit left by the labour government, who were all abut spending, hence getting us into horrendous national debt in the first place. This is why we have been forced into austerity measures. Even the labour party themselves have admitted that they spent too much and had they gotten into power under Miliband, they would have also been committed to the austerity plans in place for the next 5 years.

      Obviously I agree 100% with all the consumerism stuff. Nobody can deny that the majority of the popular media is full of it. What a load of rubbish and complete waste of time for the writers AND readers. It is base and worthless crap, encouraging you to buy worthless crap…

  2. ‘Extreme’ is anything before state pension age for a vast majority of people. Such a shame that well-established media sites like that continue to throw around ridiculous numbers and unrealistic situations which further throw people off.

  3. Ah, but you see M, THEY don’t want you to retire early! 😉 If you retire at 40, that’s 27 years you won’t be paying tax. We can’t have that. Unless you’re Philip Green or Facebook. Seriously though, the concept of FIRE is miles away from the mainstream media. I haven’t decided if that’s how I like it, or not.

    1. Ahhhh but Jim, THEY don’t want to even write proper articles anymore with correct grammar and examples that don’t change or that have mistakes in them…

  4. What’s is extreme planning? People don’t talk about savings from not eating out, savings from spending time with children helping out with homework instead of hiring a tutors. Even the guy who doesn’t make much wants to live the same standard as an upper middle class.

    My co-workers who work 13 days every 2 weeks, then take a day off. With her pay checks, she has a destination for the money to go to. At the end, not much in personal savings. The thing is the harder you work, the more hours you work, the more money you spend because you feel like you work hard, therefore you are “entitle” to a “little spending”, “treats”, or you work overtime so you can pay for a certain something. Overconsumption, instant gratification is just another problem in today’s world.

    1. Yes, you’re absolutely right! If those same people could be shown how that money could be invested and grown instead, perhaps they wouldn’t waste as much? Who knows?!

      Thanks for your comment, as always

  5. I had not seen that article. It sounds a rather rushed and slapdash job!

    The “person” in the article sounds in a pretty good position. As you say, the “extreme” financial planning does not seem necessary. Currently my expenses are sub-£900 despite a pretty heavy last few months.

    I think they should rewrite the whole thing. It could be a very interesting article if they had tried!
    Dividend Drive recently posted…September 2015: Dividend Income, Trading Activity and Portfolio SnapshotMy Profile

  6. Hi M… nice rant! 🙂

    It was shoddily written as the figures kept changing but in all fairness at least it might have exposed some people to the ideas of maxing out your employer match on your pension, using a SIPPs and NISAs to take advantage of the tax breaks, and the final sentence was:

    “All this would leave them with £1,420 each month.”

    As well as all of the erroneous figures you quoted above, a major f-up for me would therefore be:

    If they have “survived” on £1,420 per month which is £17,040 per year then why on earth is it assumed they would need £28K pre tax income in retirement. Another massive hole in the logic of the article!

    Obviously if you are living an enjoyable life whilst working spending £17k per year then it is likely you will just as fine on the same amount (or even less) once you are retired, hence even by the articles half baked “plan” our protagonist could actually retire far far earlier than they themselves suggest.

    theFIREstarter recently posted…anything is possibleMy Profile

    1. Exactly! I have literally no idea how or why it ended up so badly written, I do hope that as you say, some people might take note and start thinking about early retirement… If they’re not put off by the shoddy writing!

  7. Hi TV

    I also get annoyed at the people who fritter their money away and then complain that they are going to have to work till they drop. I had a quick chat with a colleague last week about this (he is going to have to work till at least 80), when I asked him if he knew how much was in his company pension is reply was “no, they send me statements but I throw them in the bin”.

    How do these people ever achieve anything if they can’t even work out that looking how their pension is progressing is important to your retirement?

    Another colleague recently stated when asked if the had forgotten their holiday after a week back at the “asylum” replied, “I can’t forget about it for a few months, I will be reminded of it every time I get my credit card statement.” So they are paying credit card rate interest on an expensive holiday, and can’t work out why they may not be able to afford to retire.

    Oh, by the way we all work in jobs that have to understand costs, percentages on costs etc, so if these people can’t work it out what hope have the rest got.

    The good thing about these guys though is that if everyone was living frugally, our share portfolios wouldn’t pay anywhere as much in dividends as company profits would collapse due to the massive reductions in spending and resultant profits.

    Perhaps the best thing is for us to encourage them to keep on spending?

    Best Wishes
    FI UK

    1. Ha! Fun point to think they might be feeding our own FI/RE plans by their profligate ways… However I like to think that if most people lived a more sensible financial life, then they’d be investing and lending ro small businesses too, thus allowing companies more scope to scale and develop and grow, thus in turn bringing us stable, growing dividends.

      However, I absolutely can relate to your discussions with work colleagues. One of mine is the same and it drives me MAD to say the least. I’m half inclined to carefully place an advert for a money course on his desk… If only he’d do something he could have way less stress in his life.

      Thanks so much for stopping by, I really appreciate it

  8. It’s a shame that people will read that article, not bother looking at the sums (and even less likely to look at their own sums) and just think that there is no way that they can retire early.

    That is a disappointing article, since I find that there’s often some good/interesting stuff in the Telegraph.
    weenie recently posted…Thinking and Growing RichMy Profile

    1. It was as you say, and the guy that wrote it actually quite a basic but useful article in today’s money section… It wasn’t enough to redeem him after this one though!

  9. Agreed completely. So many people I know with low paying jobs have no problem constantly buying the newest iPhones and leasing the shiniest cars. I have more than one teller in my branch that is paying a monthly car note. Again, on a teller’s salary. No investments or anything.

    I don’t blame the people completely though. All aspects of our society, from our government (“Go out and buy things or the terrorists win”) to our media (“Retail sales slumped 0.001% last month. Are we heading into a recession?”) is all about consumerism, credit, and catnip. By catnip, I mean whatever objects get us worked into such a frenzy that we MUST buy it. We know all about the next iPhone and how the camera will be slightly better than the current one, but we don’t have a retirement plan other than “keep working until I’m old and hopefully all my debt will be paid off and my 401k and Social Security will magically pay for everything afterwards”. But today, it’s all about not only what we can buy, but the best ways to go into debt to buy them.

    So yeah, that article is about extreme early retirement……….for most people.

    ARB–Angry Retail Banker
    ARB recently posted…Your Guide To Banks That Don’t Use ChexSystemsMy Profile

    1. You are right – I see a lot of that consumerism all around me here in the UK too, and it is sad. It’s not as bad as it is in the USA, and when I go over to Germany (frequently), it’s even less prevalent. Just imagine what the economy might be like if more people invested and lent money to small businesses instead of wasting money on iPhones and car payments…

      Thanks so much for stopping by

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