How do you fancy working until you’re 75? No, us neither. We would prefer to retire early. But that’s the way things are going for those who rely on a state pension. In the UK the Centre for Social Justice, a think tank which advises current Prime Minister, Boris Johnson, has suggested that it will become a necessary evil much sooner than originally thought. A report released in August 2019 stated that current plans to raise the pension age to 67 in 2028 and 68 by 2046 are not financially viable and the pension age must be raised higher and sooner. The alternative the think tank proposes? Raising the state pension age to 70 by 2028 and 75 by 2035. Ouch!
This is not a UK-centric problem. Governments around the world are wrangling with the issue of ageing populations and rapidly expanding pensions bills. The fact of the matter is, if you want a choice over when you retire, you need to make your own pension provision and start as early as you can.
If you need some inspiration, check out the FIRE concept. If you haven’t heard of it, it’s a growing movement which originated in the US. FIRE stands for Financial Independence, Retire Early and its advocates engage in some fanatical saving and frugal living over a number of years in order to be able to retire in their 50s, 40s or even 30s. It’s all about setting a target savings and investment amount and doing everything within your power to achieve that amount in the shortest timeframe possible by any means necessary: downsizing your home, downgrading your car, working a side hustle, starving the kids. Not really the last one but you get the idea! This couple did it and retired to Portugal age 40 with their two children.
Typical FIRE savings targets are up to 70% of annual income until you have earned 30 times your yearly expenses with a view to withdrawing 3-4% per year for living costs once you have achieved the RE part of the acronym.
Of course the FIRE approach is an extreme one and begs the question of whether it is desirable to sacrifice everything in the present to gain the lifestyle you want in the future. And it’s worth adding that 40, 50 or 60 years without working at all may be too much for some people, which explains offshoots of FIRE such as Barista FIRE – where an individual ditches the traditional 9-5 for a job which better fits their lifestyle.
While for most of us a more balanced approach is more desirable, the principles of saving and investing which underpin FIRE are sound ones and a good basis for anyone wishing to accumulate wealth in order to not have to rely on a state pension when they eventually retire. The key benefit of saving and investment is that they give you choice. Not just the choice to retire early but perhaps to obtain a work/life balance which gives you freedom to do what you want to do when you want to do it, to spend more time with friends and family, to travel or to turn a passion into your own business.
So if you don’t want to commit to the extreme figures that the FIRE approach would demand, what are good target figures to aim for? Well, these will be very personal to you and will depend on your specific financial objectives. So the first step is to work those out. This is something that many people find challenging and that is one reason to seek the advice of a professional financial adviser. A good one will take a holistic approach to your financial situation and really drill down into your hopes, dreams and aspirations. They will help you work out target figures which are individual to you and also draw up a roadmap of how to achieve them based on your income level.
If that sounds like the kind of help you need, why not get in touch with us? Our financial advisers are knowledgeable, personable and have a wealth of experience in helping individuals and families to devise a financial plan which is unique and entirely relevant to their personal situation.
A leading provider of expat financial services and wealth management services across Asia.
