I retired at 43, here’s how I did it
After 20 years working long hours as an investment banker, Nicholas Allen decided it was time to retire. He was 43 years old.
Nicholas and his wife, Stephanie, had built up an investment portfolio worth about £1 million, which could provide an income of £40,000 a year — enough for the family, including their two primary-aged sons, Henry and James, to live on. Stephanie did not go back to her job as a quality control officer after she had the children.
“We sat down and created several spreadsheets. We worked out our household expenses and we realised we could go for it as long as we did not change our lifestyle in the foreseeable future,” Nicholas said.
Many people dream of retiring this early, but a growing army of ardent savers who follow the financial independence, retire early (Fire) movement are making it a reality. Fire savers aim to minimise their outgoings, save a high proportion of their salary, invest in the stock market and race to pay off any debts, such as a mortgage.
Retiring early gave Nicholas, now 58, and Stephanie, 57, the freedom to spend more time with each other, to pursue their interests and take care of their family. Their children are now 23 and 19.
Most people can only dream of retiring that early. About 0.7 per cent of people say they are retired by the age of 50 and are not in paid work, according to the Institute for Fiscal Studies (IFS), an economic think tank. This increases to 4.3 per cent by the age of 55 and 17.5 per cent by 60.
Jonathan Cribb from the IFS said: “The big picture is that basically no one retires in their forties. Most people expect to retire later in life, especially if they still have a mortgage to pay.”
How you could do it
Retiring early isn’t just for the uber rich, but it does require a lot of planning. You will need enough money to cover basic living costs, unexpected expenses and your desired lifestyle for decades to come.
“Some people, like the Fire savers, take frugality to the extreme to achieve an early retirement, but most cannot sustain this long-term. The best plan is one you know you can stick to. If you yearn for frequent getaways it may not be practical to fully retire,” said Megan Rimmer from the investment platform Quilter Cheviot.
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The Pensions and Lifetime Savings Association, an industry body, estimates that a single person needs £31,300 a year after tax to sustain a moderate lifestyle in retirement, assuming they have no housing costs. This could include income from the state pension. The association calculates that a couple need £43,100 a year after tax between them. A moderate lifestyle would cover basic costs with some money left for socialising, eating out and the occasional holiday abroad.
The Allens were mortgage-free by the time Nicholas stopped work. In 1998 they paid £158,000 for their three bedroom semi-detached house in Bromley, southeast London, and spent a further £130,000 renovating it. Then they prioritised paying off the mortgage and staying debt-free. “We never went on really expensive foreign holidays as a family and our outgoings were modest,” Stephanie said.
Nicholas and Stephanie Allen. He quit banking at 43 when their children were still at primary school
How to invest wisely
To stand a chance of retiring early, experts recommend that you start investing as early as possible so your money has the chance to grow over time. “The sooner you start the better. Even if you only have small amounts to invest at first it’s about building the habit,” said Gianpaolo Mantini from the wealth management firm Saltus. “Each time you have a pay rise, save a bit more money into your Isa or pension so you do not just spend more money.”
Make the most of tax-free allowances to boost your savings and investments. You can save or invest £20,000 a year in an Isa and any growth or income you take from it is tax-free for life.
The Allens have gradually moved their whole investment portfolio into Isas. Nicholas likes to invest in companies that pay regular dividends to shareholders, such as the oil giant BP, the financial services firm Legal & General and the drugmaker Glaxosmithkline. Dividends can be used as income, leaving the rest of your portfolio invested.
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Laith Khalaf from the investment platform AJ Bell suggested putting money into the City of London investment trust, which has increased its dividend every year since 1966, and the Evenlode Global Income fund, which invests in companies with a history of growing their dividend, such as Unilever and Microsoft.
How to sustain it
Nicholas and Stephanie expect their income to go up as they get older. After they stopped work, they carried on paying national insurance contributions to ensure that they will be entitled to the full state pension when they reach 67 and are able to claim it.
They also each have self-invested personal pensions (Sipps). Nicholas’s is worth about £1.1 million and Stephanie’s is worth £450,000. In 2019 they transferred money out of the final salary pension schemes that they had built up during their working lives. It is rarely considered a good idea to transfer out of a final salary scheme because they offer a guaranteed income at retirement, but the Allens took advice and decided they wanted to make the most of the generous transfer values on offer. Together they withdraw about £80,000 a year from their pensions and investment portfolio, all of which is tax-free.
Stephanie said: “I support my family and do things I enjoy, like helping Nick do any refurbishments, doing gardening and volunteering. It is a balance between responsibilities, commitments and doing things that will challenge and interest you.”