Retiring at 40 – is it Possible?

Thanks to a new programme on Channel 4 called “How to Retire at 40”, early retirement is fresh in the minds of many people looking for freedom from the daily grind. Is it too good to be true?

The secret is, according to the show’s star, to save at least 50% of your salary. However, for many people, this simply isn’t doable.

How much would I have to save?

Take a couple who own their own home, earning around £65,000 combined after tax. They could implement a manageable budget of £2000, meaning they could save around £40,000 per year. This could earn the couple inflation-adjusted savings of £670,000 by the time they’re 40, given this money was invested and delivering an average of 5.5%.

This would mean that the couple would be able to draw the same £2,000 per month to live on as soon as they retired at 40, but would also mean that it would be too costly for them to spend money on having children, luxury holidays, or any carefree spending at all.

What about my property?

As the numbers above don’t account for any rent or house purchases, taking these into account would mean the couple’s savings would not stretch as far even if they did adhere to their modest budget. The money would only last until their 60s, or would mean they’d have to retire later on, effectively losing the point of their budgeting in the first place.

Property is the biggest variable when it comes to retiring early, as downsizing to an area where house prices are lower could allow a couple to retire early depending on savings. Of course, this depends on whether the couple was to own their own home.

So is retiring at 40 actually possible?

Retiring at 40 at the moment, even with a modest budget, would be difficult. It is possible, however, and for older generations it has been, thanks to a rise in house prices. Unfortunately, without significantly high earnings or inheritances, it seems unlikely without a very frugal approach to living.

If you’re looking for financial advice regarding retirement, pensions and how it will affect you and your family, talk to our team. Please call on 01926 492406 or email us at enquiries@klofinancialservices.com to make an appointment.