My Retirement Goals
Like most people the idea of a comfortable and rewarding retirement is an appealing one. The difference is I am starting to think about this in my early 20’s and I’d argue its the best time to start. I want to have the freedom to choose how long I work for and have the savings available to take advantages of any opportunities along the way. The best way for anyone to achieve this is to start early.
In the UK it is estimated that 38% of working age people will not be prepared for retirement due to under saving. When you look at retirement figures only 19% of men aged 55 are not in paid work with this increasing to 26% for women. With current predictions being so negative, what can someone in there 20’s do to flip the script? It may seem bleak but thankfully you have the most powerful wealth building commodity still on your side – time.
Time and opportunity are what is going to provide you with the means to set you up for your later years. My current goal is to have enough to retire by the age of 50 if I so wish. Obviously I don’t know what the future holds but preparing for it now gives future me the best chances to do whatever he desires. If that isn’t the best 50th birthday gift to myself I don’t know what is! Let’s dive into how I’m planning to achieve this.
Recommended Reading: The best way to set effective Financial Goals.
My Investing Principles
I’m a firm believer that one of the best things you can do with your money is to invest it. With long term goals such as financial freedom and retirement, investing is a well trodden route to success. I like to keep my investing simple. I go for passive global ETFs with low fees and I invest monthly no matter if the markets are up or down. For me this strategy works really well. I don’t have to worry about when to buy or sell. Diversification is mostly taken care of due to being in a fund which is split across the world and across industry sectors.
Currently I am 100% equity (stocks and shares) as I have the time to ride out any major crashes, in fact crashes give me ample opportunity to buy at sale like prices! I am willing to endure this volatility for the chance at much greater gains. Due to compounding, investing will be my primary wealth generator. However I invest using different tax efficient accounts to ensure I reach my retirement goals.
Pension
The pension is going to be my main vehicle for creating a comfortable retirement. In the UK you can access your pension at the age of 55 although this is increasing to 57 from April 2028. By the time I reach retirement it will likely have raised again. Currently I’m planning on being able to use my pension around the age of 60. This plan is also not including the state pension so I’ll be covered if its around or not.
With the average life expectancy and the cost of later life healthcare also increasing, huge strain is going to put upon my pension. Being so far out from retiring it is hard to judge the nominal figure I will need for a nice retirement. Deciding on this figure will come closer to the time. What I can do now is set up the basics to ensure a sizable pot is waiting for me.
Pension optimisation
1) Max out your employee match
Upon getting my first job, I ensured I was contributing to my pension. This was auto enrolment and so was a fairly low initial percentage. I am lucky that I can take advantage of my employers generous pension matching scheme. They actually contribute double what I put in, up to an employee contribution of 7.5%. This would be the equivalent of saving 22.5% of my pay check every month.
That’s a lot of free money and should highlight to you how important maxing out any pension matching scheme can be. As I am young this is a great head start as contributions will only grow as I progress within the company.
2) Understand where your investing
The second thing I did was to take a deep dive into where my pension was currently being invested. This is commonly referred to as the ‘default fund’. I personally was not happy with this choice due to it being heavily geared towards the UK, having higher fees than I liked and having only 60% exposure to equities with the rest being split into other asset classes, primarily bonds.
Thankfully, I was able to find an option which fit my investing approach investing in an ETF fund which tracks the majority of the global markets. I was also able to reduce my fees meaning I keep more of the gains that I make. This is currently paying off as after my first year I am up 8% which coincidently is the average stock market return over the last 100 years. For your awareness, if I had stayed with the default fund I would only be up around 6% on the year.
Stocks and Shares ISA
My Stocks and Shares ISA is my answer to the retiring early part of my plan. I use a stocks and shares ISA for all my investments outside of my pension. My strategy is simple, invest into a global index fund with low fees on a monthly basis no matter how the stock market is doing.
The goal is to achieve the average stock market return over the past 100 years which has been around 8% although I’m a bit of a pessimist so 6%+ would be nice. This is an exact replica of what I am trying to achieve with my pension just with smaller contributions. This is okay as its designed to bridge the gap to when I can access my pension which should be 10 years. The longer my ISA lasts the more time my pension has to compound meaning I can take more out per year in retirement.
Emergency Fund
As I have discussed recently an emergency fund is a non-negotiable for my savings routine. It provides a financial barrier between me and any disaster that may come my way. Without it I would most likely have to dip into my savings or my investments which would seriously harm my financial goals.
By building up an emergency fund of 3 months living expenses I have given my retirement goals a layer of security. As I get older, I’ll likely start adding to this cash buffer just for a little extra security but for my current circumstances this works. A combination of my emergency fund, pension and ISA should mean that I will have financial security long into my old age.
Recommended Reading: Find out how to set up and manage your own personal Emergency Fund.
Increasing My Income
The biggest factor that effects how much you’ll be able to save and invest is your income. The ideal scenario is having a high income as early as possible as it means you can put aside more money whilst not being overly frugal. This is key for me as I don’t want to waste my younger years in frugality only to be old with more money than I need and not healthy enough to enjoy it. As I have plans set for my pension, investing and emergency fund, increasing my income is currently priority number one. My 5 year goal is to earn over £50k a year and I feel I am more than capable of getting there.
My Strategy
My Primary Job:
Firstly, I am lucky that in the company I work for there is a fairly clear progression structure. (As a side note this is a great topic to bring up at a job interview). By proving I can provide results, ensuring I have the skills required, and getting my superiors invested in my progression it’s not unreasonable to assume I can reach the £50k threshold in this timeframe. The main priority will be to gain the expertise to be successful in my current role and ensuring I continually improve.
Secondary Income:
Even though I feel I am fully capable of achieving my target in my current workplace I am excited by the prospect of having a supplementary income stream. With a side hustle I want to do something enjoyable and something that provides benefit to people. This blog and talking about personal finances for people just getting into the workplace is something I wish to explore further. Building this into an income will be tough but I am determined to keep it up for the next 5 years. Even if I don’t make anything at least I can say I tried and I’ll have no regrets.
Balancing Frugality and Fun
This is the most important part for me. As I touched upon in the previous section I still want to enjoy my life. Although frugality is the optimum way to create more wealth you can deprive yourself from the enjoyments of life. This is why I wish to balance this out.
In my first few years of investing I went all in and had very little money at the end of the month to enjoy my life. As I am earning more I’m challenging myself to balance this out. Yes I will still slowly increase my contribution rate into my ISA but I wish to let this filter into my disposable income more often. This money can then be used for travel, being sociable, gifts or even supporting my side hustle and investing in my own future. As long as I budget a minimal figure into my ISA and keep contributing into my pension I believe I will be able to retire early with no regrets.
Recommended Reading: Learn how to create the perfect budget for you with Budgeting For Beginners.
Fitness for Longevity
This may seem slightly off topic but fitness plays an important role in my retirement plan. I could have all the money in the world but if I’m not in good health to use it it’s not really of much use to me. Therefore I’m taking a consistent approach to my fitness, to help give me the best opportunity to enjoy the wealth I accumulate for as long as possible. A mix of cardio, strength training and mobility all feeds into my fitness journey. Just like investing, a consistent ‘little and often’ approach should reap many benefits in the long run!
Conclusion
With this approach I am confident I will be able to reach my retirement goals. I hope this advice has given you ideas of how to start your own preparations for later life no matter your age. In general the earlier you start the better so there’s no time like the present. Any questions or comments please get in touch below. Happy investing!
Disclaimer
All information is not financial advice and is purely meant for educational purposes only. Investing involves the risk of loss of capital as well as its gain. Any investments mentioned on this website are meant as examples not specific recommendations. Always do your own research and/or gain the help of a financial advisor.
