Our Basic Strategy to Retire at 50

This blog post outlining our basic strategy to retire at 50 was originally written in February 2014 for our sister website – The Money Muppet. We set that site up in January 2014 as we embarked on our journey to financial freedom. The Money Muppet site no loner exists, so we’ve incorporated our financial journey into our travel blog.

OK, this little beauty of a strategy is bound to evolve as we build up experience and knowledge in the world of money, and as the world bucks and gnashes its teeth around us, but this is Ground Zero, our starting point for being financially independent by 50. That’s eight and a bit years from now, and we’ll be flyin’ free, yeah baby!

The strategy, at its most basic level, is to:

1. Spend less on stuff we don’t need
2. Start to earn through investments, rather than just hours in the office

I said it was basic. The rest of this blog will be mumbling on about one or the other of these for the next bunch of years, but the foundation’s as simple as that.

Let’s take #1 first. We’ve already gotten used to running our domestic lives as a business, to some degree. Yeah, I know, this is dull stuff – keeping an eye on every penny going out and coming in, who cares? I do. I want financial freedom rather badly, so I care. I haven’t always, which explains why I’m not already financially free, but I care now.

We know where our money goes (well, Ju does), to the nearest pound. We know what we own. We know what debt we have (one mortgage), zero other debt. We know what income we can expect (to some degree as I’m a contract worker these days – more about that another time). With all of this info in an in-ya-face spreadsheet, we can see where we’re leaking spondooolies and stick a thumb in the holes.

It’s not always obvious mind, where we’re losing cash, since we take a few things for granted which we shouldn’t. Like using a car for commuting, which as it turns out is STUPIDLY expensive, and helping make us all poor. Meat and booze are expensive too, as are cigarettes, thankfully neither of us smoke, pass the wine. Having lived in a 2.2m by 5.5m box for 2 years, we’re not going to be needing a three bed detached house any time soon. Having seen families of four happy to enjoy the luxury of co-travel on a single moped, a fully paid up, heated Smart car will do us nicely. By the way, I told a Bulgarian colleague yesterday that we have a Smart car as I offered her a lift from the city: “haha! a Smart car! only women drive them here!” I declined to comment, somehow imagining a Smart car might have been seen as a luxury in one of Europe’s poorest countries, nope.

And moving swiftly on to #2. Investing is by far our weakest half of this equation.

Our feeling is the UK state pension is a looking more Lord Lucan by the day, something we don’t intend to rely on. It keeps slipping further away as we’re all refusing to die when we used to, and requires more years of punting cash into it than we fancy working. It’s not worth a fat lot anyway. The safest option seems to be to assume it’ll pump a big fat nothing into our retirement pot.

Through our years of working (21 for Ju – school of life, 18 for me, school of Loughborough University), we’ve built up a few private pensions. These will prop us up a bit, we hope. A pension advisor’s been through ’em all and recommended we keep them as they are. They must be decent as he passed up commission, so we’ll sit on them for the time being. At some point I’ll figure out what all those Shakespearean blustering A4 statements are drop through the letterbox with a WHUMPH each year, to be swiftly filed away with a furrowed brow and grinding teeth.

So, a bit of pension cash in a couple of decade’s time. Not looking good. Or is it? We’re aiming for a financial freedom target of £25k a year, which should MORE than cover us, if things got a bit tight we could go live in Thailand for a year for $6000 plus a couple of grand for flights and lady boys. Yes, I am serious about this (not the lady boys part) the UK is damned expensive, more expensive to live in than Austria). This is our target, but in reality it includes a podgy safety margin, and assumes we would earn NOTHING ever again, which shouldn’t be the case. Depending on whether you believe it or you do not believe it, the 4% rule means we’d need a stash of invested capital worth £625,000. By the theory at least, which I’ve yet to more than skim-read, with that amount of wonga invested well we could live off the interest for ever. The money would have to make at least a 4% return, plus inflation, so the capital would in real terms stay exactly the same, we could live on it for 50 years if by some voodoo magic our bodies lasted that long.

In summary, we’re craning our necks peering up at a looming mountain of a target, but I’ve always fancied mountain climbing, and we’re grateful we’re not in a deep well of debt to clamber out of first.

Cheers, Jay

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