RETIRE in 10 Years by INVESTING £500 Monthly (Tax-Free!)
Do you currently feel like time is running out for you? 🤔
You know you have to retire sometime in the future but at this very moment, you have little or nothing saved for that retirement.
You keep hearing of people talking about investing and letting that money compound for 20 years or 30 years but you know deep down that you don't have that long.
At best you've got 10 years.
If that resonates with you, then this post is exactly for you.
No Savings at 40+? RETIRE in 10 Years INVESTING £500 Monthly (Tax-Free!)
I recently wrote about how to generate £2,000 per month in passive income tax free and I did a bunch of scenarios about when people might want to receive that level of passive income.
i.e. 30, 20 and 10 years from today.
This was to appeal to different people because we have different age groups who read our blog.
However, I went to have my haircut and the barber said to me:
Do you know what, Ken? I read that post and I felt really down. I feel like I'm running out of time 😔.
He said, imagine this scenario.
Assume you are 45 years old and doing a job because you have to do it and pay your bills.
You barely even spend time in a house you're paying a mortgage for because you're always working.
On top of that, you've got two children and every month you have a choice to make with the little bit of money left over e.g. £500 or at best £850 with a push.
You could either use it to enjoy your life or use that bit of money you have left over to invest for a future retirement bearing in mind that you have little to nothing at the moment.
What would you do, Ken, in my scenario?
I don't have 20 or 30 years. I want to be done by 55, 10 years from now.
I want to start enjoying my life while I've still got it.”
The Reality of Limited Time
I'm making this video to not only speak to my barber but to speak to you if you are in this situation where you have little to nothing saved for retirement in your ISAs or their pensions.
This dilemma really hit me when my barber explained this because this is something that people are really struggling with.
Post-pandemic, most people don't want to work for that much longer in the future.
In a recent poll at Financial Joy Academy, I asked, what age is your absolute final point to stop working?
Not a single person said they want to retire beyond the age of 60.
Most said between 50 and 55 at the latest ideally.
I'll make a few assumptions to tackle this dilemma while keeping it relatable to more people:
- Scenario 1: You're starting with zero savings, although unlikely.
- Scenario 2: You have around £20,000 in retirement savings.
- For each, I'll assume you have £500 or £850 a month available to invest.
- I'll also assume you're in your 40s and want to retire in 10 years.
- You either own a home with a mortgage or you're renting.
- Finally, I'll assume an average of 8% real return on investment from investing in the S&P 500 or a low-cost global index fund or ETF.
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Investing £500 Monthly: Starting with Zero Saving
If you choose to invest £500 a month, starting from nothing, you can expect significant growth over ten years.
Assuming an average return of 8% per year, your portfolio could potentially reach around £91,206.99.
This figure is not trivial; it's a substantial amount that can provide a foundation for your retirement, depending on where you choose to retire around the world.
Investing £500 Monthly Plus 3% Annual Growth: Starting with Zero Saving
Now, consider increasing your monthly investment by 3% each year.
This adjustment acknowledges the potential for salary increases or lifestyle changes that allow for more substantial contributions over time.
At this rate, after ten years, your portfolio could grow to approximately £102,569.
Last year, the S&P 500 returned around 25%.
If you had £102,569 invested, a 25% return is around £25,642 additionally.
Of course, The S&P 500 does not have this unusual return every year.
Some years are high and some low, but expect a long-term average of around 8%.
Investing £850 Monthly: Starting with Zero Saving
Next, let's examine the scenario where you invest £850 each month, starting again from zero.
Under the same 8% annual return assumption, your investment could grow to an impressive £155,051 over the same ten-year period.
This scenario highlights the power of increased contributions and the impact they can have on your financial security.
Investing £850 Monthly Plus 3% Annual Growth: Starting with Zero Saving
If you decide to increase your monthly contribution of £850 by 3% each year, the growth potential becomes even more significant.
In this case, your portfolio could reach around £174,369 after ten years.
This strategy not only takes advantage of compound growth but also aligns with the principle of gradually increasing your investment as your financial situation improves.
It's worth noting here that the average UK pension pot in retirement is around £166,000.
So with this scenario, you're doing pretty well, again, depending on where you choose to retire around the world.
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These scenarios illustrate the importance of starting early and staying consistent with your investments.
Even modest contributions can accumulate to a substantial amount over time, especially when combined with the benefits of compound interest.
Remember, the journey to a secure retirement is not solely about the amount you invest but also about the decisions you make along the way.
By defining your investment scenarios and committing to a plan, you set yourself on a path toward financial security.
Considering a Starting Balance of £20,000
Starting your retirement planning with a balance of £20,000 can significantly alter your financial trajectory.
This initial amount provides a solid foundation from which to grow your investments over the next ten years.
I know not everyone has £20,000 in their ISA.
Here is what the research says about the average market value of ISA accounts in the UK by age:
The average across all ages is just over £30,000.
Let’s assume that you start with a lower amount of a £20,000 ISA pot (which I'm aware not everyone has).
By incorporating this starting balance into your investment strategy, you can leverage the power of compound interest more effectively.
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Investing £500 Monthly: Starting with £20,000 Saving
For instance, if you invest £500 a month with this starting balance, your total portfolio could reach approximately £146,730 after ten years, assuming an 8% annual return.
Note below that we've also assumed that the amount you invest rises by 3% annually.
Investing £850 Monthly: Starting with £20,000 Saving
Alternatively, if you choose to invest £850 monthly under the same conditions, your portfolio could grow to approximately £218,530 after ten years.
This scenario emphasizes the significant impact of higher contributions on your retirement savings.
The difference in outcomes between investing £500 and £850 is substantial, highlighting the importance of maximizing your contributions wherever possible.
Realistic Expectations for Retirement Savings
When planning for retirement, it's essential to set realistic expectations.
The figures mentioned earlier illustrate that while significant savings can be achieved in ten years, it will not guarantee a luxurious lifestyle.
Depending on your retirement goals and lifestyle choices, the amount saved may need to be adjusted.
Understanding the average retirement savings in the UK can provide context.
As mentioned, the average pension pot is around £166,000.
This figure serves as a benchmark, helping you gauge your progress and set achievable goals based on your circumstances.
Factors Influencing Retirement Expectations
- Cost of Living: Consider where you plan to retire and the associated living costs.
- Housing: Renting is harder in retirement in the UK, so consider cheaper locations. Alternatively, aim to downsize or move to a cheaper location if you're a homeowner. This will free up equity.
- Healthcare Needs: Factor in potential healthcare expenses as you age.
- Desired Lifestyle: Reflect on the lifestyle you wish to maintain during retirement.
Maximising Your ISA and Pension Contributions
Utilising tax-efficient accounts like ISAs and pensions can enhance your retirement savings.
In the UK, you can invest up to £20,000 annually in an ISA, which allows for tax-free growth. Plus, you can access your money at any time.
Additionally, contributing to a pension can provide tax relief, making it an attractive option for many savers.
For every £80 you contribute to your pension as a basic rate taxpayer, the government adds an extra £20, effectively boosting your investment.
Higher-rate and additional rate taxpayers benefit even more, receiving additional tax relief on their contributions.
These incentives can significantly increase your retirement savings over time.
However, remember, you cannot access your pension until the age of 55 or 57 (from 2028).
Strategies for Maximising Contributions
- Automate Your Savings: Set up automatic transfers to your Stocks and Shares ISA each month.
- Increase Contributions Gradually: Aim to increase your contributions by a small percentage each year.
- Take Advantage of Employer Contributions: If your employer offers a pension scheme, ensure you contribute enough to benefit from any matching contributions.
Choosing Your Retirement Location
The location where you choose to retire can have a significant impact on your financial situation.
Retiring in an area with a lower cost of living can stretch your savings further, allowing for a more comfortable lifestyle.
Researching potential retirement locations can provide valuable insights into the best options for your budget and lifestyle preferences.
Read this blog post about 10 budget-friendly places to retire in the world.
Consider factors such as housing costs, healthcare availability, and local amenities when evaluating potential retirement locations.
Countries with lower living costs, such as those in Southeast Asia or parts of Eastern Europe, Africa, etc, may offer attractive alternatives for retirees looking to maximise their savings.
Popular Retirement Locations
- Portugal: Known for its mild climate and affordable living.
- Spain: Offers a vibrant culture and lower costs compared to the UK.
- Thailand: Popular among expats for its affordability and quality of life.
- Ghana: offers retirees a vibrant cultural experience, affordability, and a tropical climate.
- etc
Note that Brexit has made things a lot harder for a lot of European destinations. So countries in Asia, Africa, South America, etc, might take priority.
Conclusion: Retire In 10 Years
Achieving a decent retirement in 10 years is possible, even with limited savings.
The key lies in taking proactive steps now, making informed investment decisions, and setting realistic expectations.
You may also need to make difficult choices, e.g. downsizing to free up equity and moving to a lower-cost location.
If you choose to retire in the UK, it will be a lot harder to make any of the above numbers work, although not impossible, depending on your circumstances.
However, my suggestion is to consider strongly the possibility of retiring outside the UK where the cost of living (including housing) is a lot lower.
In addition, you may need to maintain some part-time work to supplement your income and give yourself a sense of purpose when you retire.
Whether you start with £20,000 or nothing at all, your actions today can significantly impact your future.
As you embark on this journey, remember to stay focused, be disciplined, and regularly review your progress to stay on track.
Overall, stay encouraged and don't give up!
Thank you for reading today's post.
Below are some additional resources to help you with your goal to retire in 10 years:
What are your thoughts about today's post? 😀. Do you feel more encouraged having read this? Feel free to ask a question below ⬇️
Here is a video version to help you with your goal to retire in 10 years:
And as always, in all things, be thankful and seek joy. Take care and bye for now.
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