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How much do you need to invest to retire early?

If you dream to retire early at the age of 50, or even 40, you’re going to need to cut back on spending and aggressively save. To enjoy life to its fullest without working, your retirement funds and investment portfolio will need to cover your current (or desired) level of expenditure. So how much should you aim to have invested?

This all depends on your lifestyle, as well as the lifestyle you intend to live once you eventually cease to work full-time. Will you be frequently travelling around the world and enjoying the luxuries that go with bouncing between five-star resorts? You’re going to need to have considerable funds coming in on a monthly basis, especially if you plan on upgrading your flights.

Retire with £50,000 annual income

We’ll use £50,000 as a target for how much is required to earn each month to cover expenses once you stop working. In order to receive that from investments, you’re going to need to multiply the figure by 33. This brings us to a total of £1,650,000. That’s how much you’d need to have invested to earn £50,000 per annum. The maths behind this is known by financial independence retire early (FIRE).

How much you have saved already should be subtracted by this goal, which provides the final amount you should save before retiring. You can then divide this amount by a number representing years you have left until you meet your desired retirement age and you now have how much you should save each year. Divide again by 12 and you’ve got your monthly savings target.

So, to recap:

  • Retirement income: £50,000.
  • Retirement goal: £50,000 x 33 = £1,650,000.
  • Annual savings target: £1,650,000 divided by the years left until retirement.
  • Monthly savings target: Divide the annual target by 12

I’ll plot this data into a chart, which assumes you have no money saved at all.

YearsAnnual TargetMonthly Target
1£1,650,000£137,500
2£825,000£68,750
3£550,000£45,833
4£412,500£34,375
5£330,000£27,500
6£275,000£22,917
7£235,714£19,643
8£206,250£17,188
9£183,333£15,278
10£165,000£13,750
11£150,000£12,500
12£137,500£11,458
13£126,923£10,577
14£117,857£9,821
15£110,000£9,167
16£103,125£8,594
17£97,059£8,088
18£91,667£7,639
19£86,842£7,237
20£82,500£6,875

The above table may not be the most motivating table you’ve come across, but it’s worth noting that this is for a retirement pot that returns upwards of £50,000 a year. That’s around £4,167 per month, which is far higher than the average wage in the UK. Why I used this number is to show just how far you can reach if you really put your mind to it.

By starting at the age of 20, you could retire by the time you’re 40 with a pot worth £1,650,000 if you manage to save £6,875 a month. That’s not manageable for most people, so let’s set a more realistic age of 50. This brings the monthly target down to £4,583. What about 60? £3,438.

Retire with £30,000 annual income

If you were to lower the required yearly return from your investments to £30,000 a year, the table looks vastly different. We’d need only £990,000 for our investment portfolio to reward us with a return of around £2,500 per month.

YearsAnnual TargetMonthly Target
1£990,000£82,500
2£495,000£41,250
3£330,000£27,500
4£247,500£20,625
5£198,000£16,500
6£165,000£13,750
7£141,429£11,786
8£123,750£10,313
9£110,000£9,167
10£99,000£8,250
11£90,000£7,500
12£82,500£6,875
13£76,154£6,346
14£70,714£5,893
15£66,000£5,500
16£61,875£5,156
17£58,235£4,853
18£55,000£4,583
19£52,105£4,342
20£49,500£4,125

Again, this is for up to 20 years. If you want to retire in 30 years time with the same pot, you’d need to put aside just £2,750. Bump that up to 40 years and that’s now £2,063. If you can live with less then your initial requirement will fall further. Try and match your current earnings with expectations and how much you desire to spend each month.

Retire with £20,000 annual income

The last FIRE goal is for an annual income of £20,000, which is still a fair chunk of change when joined by a pension fund. That’s around £1,667. In order to enjoy such a sum of money being delivered to your account on a monthly basis, you’ll need to put away a total of £660,000.

YearsAnnual TargetMonthly Target
1£660,000£55,000
2£330,000£27.500
3£220,000£9,167
4£165,000£13,750
5£132,000£11,000
6£110,000£9,167
7£94,286£7,857
8£82,500£6,875
9£73,333£6,111
10£66,000£5,500
11£60,000£5,000
12£55,000£4,583
13£50,769£4,231
14£47,143£3,929
15£44,000£3,667
16£41,250£3,428
17£38,829£3,235
18£36,667£3,056
19£34,737£2,895
20£33,000£2,750

These figures don’t take into account dividend compounding. Should you be investing in stocks that pay out a dividend of around 5%, you will start to see considerable returns from the first year of opening the investment portfolio. These payments will start off small, but once the ball starts rolling, it quickly increases in pace and size.

If you plan on investing £500 per month, this will immediately start increasing from when you pick up some dividend-paying stocks. Once those payments start coming through, they will bolster your investment injection for that month. So don’t fear about big numbers and get started right away. The sooner you start investing, the more time you have to get your portfolio into the shape you need it to be.

By Rich Edmonds

Rich creates content for the top Windows-focused publication, but by night he tries to make his money work for him and rambles far too much here.

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