Early retirement in 5 years in the UK… is it possible?

Jul14
by TFS on July 14, 2013 at 10:29 pm
Posted In: The Basics

So I guess the question on everybody’s lips is can you retire early in the UK, in 5 years or less, and if so how?

Short Answer – Yes, and here is a rough outline of a plan:

Part I:

  • Live well below your means
  • Save aggresively (50%+ of net income)
  • Invest the savings in passive income producing stocks, bonds and property

Part II

  • Side Hustles: Develop alternative passive income streams

Ok now for the long answer, and a few caveats. I’m not a snake oil salesman selling a pipe dream, and this is going to require some determination and hard work!

As stated in my first post, my now public goal is to retire from my office drone job in five years or less, and in the UK of all places. Yes, while all around me are indignant over the credit crunch, doing their nut over the double dip recession, and complaining about cuts the government are making, I’m planning to build up enough wealth to fund passive income enough to live on. To those unfamiliar with how this works let’s briefly go over the maths (sorry US chums, yes it is “maths” and not “math”):
£££ Money needed to retire on = Yearly expenses divided by 0.04
Therefore lets say my yearly expenses are £10,000 – I need roughly £250,000 invested in income producing assets (stocks, property, as mentioned above) to be confident to leave my sunlight stricken cubicle that is supposedly a suitable environment for a human being to spend the best part of their available daylight hours in.
Now £250,000 in 5 years is a big ask. Unless you are on a 6 figure salary already (which I am most definitely not) it is a humoungous, gargantuan, impossibly out of reach goal, and even I am not audatious enough to dispute this.
Here is where part II of the plan kicks in, creating alternative passive income streams, otherwise known as Side Hustles. There are a multitude of ways to do this online nowadays, some can be very nearly truly passive, where a small amount of upfront work generates an ongoing and relatively stable income, while others may need a small amount of work from time to time to keep things going. There is also a third type, which really just amounts to working from home, although the obvious benefit here is that you get to choose how much work you do and when you do it! This leads me neatly onto my first, and in fact only caveat: the definition of retirement for the purposes of this blog:

Retirement to me simply means being able to quit my corporate office worker job, you know, quit working for “the man”. The day I can feel comfortable enough to hand in my notice without another regular job planned – what is know as having “fuck you money” for hopefully obvious reasons – will be when I have “Retired” from the corporate treadmill and therefore retired for the purposes of the challenge on this blog. When I reach that goal I have plenty of stuff planned to do – no chance of getting bored here – but there are a multitude of things you may want to do once you’ve hit your target savings plus passive/side hustle income goals:

  • Slow Travel The World knowing you have a nest egg to fall back on
  • Spend more time with friends and family
  • Work part time and enjoy the extra free time to pursue other non income producing interests
  • Volunteer work for charity
  • Go and live in another country for a period of time
  • Get really good at a sport or musical instrument, or any other skill that interests you but you never had the time

Finally I thought it would be interesting to see how the “Part II” of the plan can affect the amount needed to save up and with various amounts, so I created a spreadsheet. You will come to know quickly that I love a good spreadsheet!

post-ii-spreadsheet

How passive income and yearly expenses affect time to early retirement

This vividly demonstrates we can seriously reduce the investment pot needed, and therefore drastically shorten our time to quitting the day job, by a combination reducing our yearly expenses and increasing passive income; the target combination is brightly highlighted by the bright green row. Let’s face it… the “top up income” doesn’t even have to be passive, just do something productive that you’ve always wanted to do and it’s bound to produce a bit of income! And if that fails you can always get a part time job, or just work for 6 months of the year. In any of these situations you have oodles more free time to do what you want, and that measures up as a clear win by the TFS yardstick.

So I say start living your life the way you want to as soon as possible, the freedom you will gain from even a relatively small amount of investment income will be immeasurable! I’m not waiting around building up a half million pound retirement fund, only to be too old to enjoy it, I value my time far more than money and am bailing out of the time and soul sucking corporate work world pronto.

Won’t you join me?

Next post spoiler: Is £10,000 or less enough to live on in our complicated, modern World?