JACOB Aldridge might only be 40 years old, but he’s already planning to quit work and start his retirement.
He is one of a growing army of people in the so-called FIRE movement, who are saving hard at a young age so they can start retire ahead of schedule.
Jacob Aldridge plans to retire decades ahead of schedule
FIRE stands for Financially Independent, Retire Early – it’s a movement which started in America in the early 90s, but has become popular elsewhere in the world.
Jacob, who currently lives in Australia and works as a business consultant, said: “I first heard about FIRE in my early 30s – I found a blog about financial independence and it opened my eyes to what was possible.
“I was immediately excited by the thought of only working by choice – or possibly never working again – decades earlier than I had originally planned.
“Now, if everything goes perfectly, I’ll be in a position to retire the day before my 42nd birthday.”
The idea behind FIRE is that you save and invest a higher proportion of your earnings at a young age so you can gain financial independence and be in a position to retire early.
Research by money transfer site Remitly found that online searches for “FIRE method” have soared by 46% this year alone.
It’s an understandable ambition given that people are working longer than ever – the current State Pension age in the UK is 66 and will only go up.
And more people in their 60s and 70s are having to work longer than they expected just to pay the bills.
For many people, the FIRE aspiration will sadly be unattainable – but that’s not to say you shouldn’t save for retirement if you can afford to.
Be sure to do your homework and check how much you’ll need to set aside – and make sure you can afford it, you shouldn’t leave yourself struggling now.
Here are Jacob’s top tips for any FIRE wannabes:
Do your maths
Work out what you expect to spend in retirement to give you an idea of how much you’ll need to save. Don’t forget to factor in a budget for unexpected expenses like a broken boiler or car repairs too.
Many FIRE savers work by the “4% rule” – this is where you divide your annual expenses by 4% to get your “retirement number”, which is the amount you need to set aside to last you.
So, if your annual outgoings – mortgage, bills, groceries, holidays and everything else – were £15,000, your retirement number would be £375,000, and you could expect this to last you around 25 years (although it’s important to factor in inflation).
Jacob is a high earner, and as he’s self-employed his income changes from month-to-month, but he aims to save around £2,000 a month.
Some savers also have assets such as a business or buy-to-let property that can provide an income even after they have retired.
Other FIRE savers shift to part-time or freelance work rather than retiring completely.
Start investing
Savings rates are at rock-bottom so it’s hard to grow your money if you keep it in the bank.
Soaring inflation also means the “real” value of your cash is being eroded away as the same amount won’t stretch as far as it used to.
For FIRE savers, that means you’ll need to invest.
Jacob said: “Start small. Set up a stocks and share ISA and once you have made the first step, it gets easier.”
He used forums to get advice, but you can also seek help from a professional financial planner.
It’s important to keep in mind that with investing, there are no guarantees – and the value of your money could go down rather than up.
Experts recommend drip-feeding small amounts rather than investing a lump sum, and being sure to leave your money alone for the long-term.
Apps like Nutmeg and Moneyfarm can help you choose low-cost investments.
Factor in other savings
You’re not completely on your own when it comes to saving for retirement – although you may have to go it alone for a while if you’re hanging up your boots early.
Remember that from age 66, you’ll get a State Pension too and this is currently around £185 a week.
If you’ve been saving into a private or workplace pension, you should be able to access this from age 60 (though it might be earlier or later, so check your scheme)
Saving money into a Lifetime ISA is a good choice for many people.
You can put aside up to £4,000 a year and you’ll get a 25% top-up from Government as long as you only use the cash either at retirement or to buy your first home.
If you saved £4,000 a year from age 18 to 50, you’d have £128,000 (not including any interest on top) and would get a £32,000 Government bonus.
If you’re using the cash for retirement, you can’t access it until age 60 or you’ll forfeit the bonus.
You’ll have to make sacrifices
Jacob said it’s important to think carefully about how you want to spend your money.
Make a spreadsheet to help you budget and look for areas you can cut back on spending.
But be sure to allocate some money to fun things and little luxuries – it’s not about depriving yourself, said Jacob.
“It’s not all rigid saving 100% of the time, but the challenge is spending money where it is important to you – and not mindlessly spending because everyone else is doing that.”
That said, this extreme style of saving is not easy and you’ll have to be willing to make some sacrifices.
Jacob said it was sometimes to difficult to see friends buying new fancy cars and big family houses: “It’s easy to feel like I’m missing out by driving a beater and cooking in a 20-year old kitchen.”
Jacob said taking on extra work such as a side hustle, freelance role or part-time employment on top of your day job can help you super-size your savings.
If you don’t want to save every single spare penny, you could consider making compromises.
For example, you might work part-time instead of retiring completely or, if you had dreamed of retiring at 40, you might push this back to 50 to reduce the amount you need to set aside.
We spoke to one savvy saver who retired at 35 years old after stashing away almost £1million.
And another FIRE saver is on track to retire at 40 because she goes months at a time without spending a penny.
