OK we are a few posts in to my humble corner of the interweb so I think it’s time for a quick little recap:
We’ve analysed living expenses in the UK and have come to the firm conclusion that we should be able to live fairly comfortably on 10k per year (per adult wage earner, more if you have kids!).
This relates back to the argument that we could, theoretically, if we so wished, retire with *just* £250,000 in net worth, as long as that was in asset producing investments.
The third and final piece then is your savings rate, as this determines how early you may be able to actually retire. A nice graph-ical demonstration of how this works can be viewed here.
So let’s take a savings rate which is considered to be fairly standard by the early retirement crowd, but probably ridiculously extreme by the average consumer’s standards, which is a 50% after tax savings rate. A lovely round number, and easy to work with on many levels. For every pound you take home in your pay packet, one pound will be invested. As we can see from the graph this gives us a retirement projection of just 16-17 years assuming an investment return of around 6% per year.
Great news, right!
There’s more. I had a play around with a supremely useful UK tax calculator for the year 2013/2014 and a lovely bit of serendipity happened. I was trying, you see, to find out what sort of salary you’d need to achieve a 50% savings rate, which for the percentages literate of you will have already worked out, would mean an after tax take home of £20,000 or more. After about 3 seconds of shoddy mathematics* I tapped in the semi random figure of £26,500. This came in nicely over our our 20K marker at £20,837.76, yea yea, that’s real nice right? My final goal though was to compare this to the averages UK salary to see realistically how achievable early retirement could be for a large proportion of the UK population. I thought my initial estimate was a bit high for that average, so I decided to work my way down to exactly 20K take home to see what the pre-tax salary would be. The results I can tell you’ve all been waiting for, are here:
Yes that’s a minimum of £25118.30 pre-tax salary** needed to live comfortably off of 10K per year, save 50% of your income, and retire in 16-17 years. This is kind of mind blowing, when you think if you start at age 25 you could retire at age 42 on a fairly average wage.
I’ve started to make assumptions again there, so how does this actually stack up for you average Brit? Oh yea… serendipity, that’s what I was harping on about! The reason being, after a quick Google search, it turned out that the average wage in 2012 was, in fact, £26,500 – I hit the number on the nose on my very first guess! So there you have it, conclusive proof 😉 that pretty much anyone with any kind of moxie could retire early in this lovely old country of ours. Roughly 23 years early in the above example of our 25 year old!
One other thing which might blow your mind. I was browsing through Wikipedia looking for confirmation of the average UK salary, and came across a nice little table which shows how much net-worth you’d need to qualify to be in a certain percentile of UK wealth ownership. As you can see to be in the top 10% of the Country you’d need £176,221 – this was back in 2004-2005 though. Inflation adjusted for 2013/14 that works out as £229,928 – putting our average Brit who saves 50% of his salary in that top 10% bracket in under 16 years. I had no idea this could ever be possible for me, let alone someone on average salary.
You often hear the old saying “Money goes to money” or “You need money to make money” and this is in part obviously true, but it is normally spouted by those who seem determined to spend their whole paycheck every month. It’s generally used as an excuse… “I’ll never be wealthy as I have never started with any wealth”, we tend to look at people with money as either having had a large inheritance or just think they are lucky. I think this attitude is more rife in this country and Europe, than other more pioneering counties (read USA). The numbers above prove that luck very rarely plays a part in wealth accumulation, and there are really no excuses on why you can’t be a part of that ellusive top ten or even five percent – £352,502 net-worth needed adjusting for inflation, if you are interested ;). It just takes time, and therefore patience, plus a bit of hard work (not much more than average) and some determination.
On a final note, I am not expecting any naysayers from the early adopters of the blog*** but as it hopefully grows, any doubters on the figures of the concept can work with this basic example to see how possible it is. I’m not saying you can do it on a part time 10K per year job, I am not saying you can do it if you have 7 kids, but the example above covers a worst case scenario, salary wise at least, for a huge amount of the working population, who have literally no idea (and almost certainly no inclination) that this is a path they may be able to take through life.
If you’ve stumbled across this blog and have never heard of these Early Retirement concepts before I would really love to hear your views on it. Do you just think we are all barking mad? Do you love work so much you are happy to do it till your 60? Do you think the numbers just don’t stack up? Or do you kinda like the idea’s that are being presented here, and can envisage your path to freedom by substituting your own numbers into the examples I’ve presented so far?
To all the pro’s out there – what are your numbers!? Are you already at FI, and if not how many years have you got to go?!
*estimation / pure guess work. Back ↑
**Note that I’ve left out any pension contributions or any other complications to keep things as simple as possible. Back ↑
***Thanks again for anyone – naysayer or non-naysayer – reading at this stage by the way, you are quite obviously a highly intelligent and enlightened member of the human race! Back ↑