Most people work for decade after decade before they finally get to put their feet up. Many do not even enjoy that luxury at the end of their working lives. That is why a lot of people want to retire early.
But dreaming of an early retirement is one thing. Coming up with a plan to make it happen – and putting it into action – is another.
I actually think a fairly straightforward plan based on regular saving and investment in blue-chip shares could help me build the level of financial resources I would want to retire early. Here is how.
Time is an enemy – or friend
Time marches on relentlessly for us all and can be problematic as retirement approaches. If I have not made the right provisions in time, I may end up retiring without the financial resources I wanted.
On the other hand, the right sort of forward planning can actually put time to work on my behalf. Imagine, for example, that I put a lump sum of £20,000 to work in the stock market and it grows at a compound annual rate of 8%.
If I do that at 62, by the age of 67 my portfolio will be worth nearly £29,400. If I had started five years earlier, at 57, that sum would be over £43,000.
But starting at 50, I would have £74,000 by the time I hit 67. If I started at 40, I would be sitting on just under £160,000. If I had been smart enough to begin at 30, by the time I hit 67 my £20,000 would have turned into just under £345,000!
Right idea, wrong time
Put like that, it sounds obvious as to why I think I should have started saving for retirement at 40, 30, or even younger.
But there are a couple of problems with this approach. First, many people in their thirties do not seriously think about retirement. That costs them in the end, as acting early rather than later can clearly have a transformative impact on finances closer to retirement age.
Another problem though, is cash flow. Using my example above, it is easy to see why I think I should have started investing for retirement seriously in my twenties. But at that stage in life, a lot of people simply do not have a spare £20,000 sitting around to put into a retirement plan.
Saving today to retire early
That is why I would fit the ends to my means. If I had spare cash today, I would use it to invest more in companies I already own in my pension plan, such as Dunelm and JD Sports. I do not need a lump sum to do that.
An alternative would be for me to drip feed a smaller amount on a regular basis into my portfolio.
If I started to invest £300 each month as I turned 30, for instance, and it compounded annually at 8% as in the example above, when I reached 67 I would have nearly £758,000. With that sort of money, I think I could stop before I hit 67 and retire early!
The post I’d put £300 a month into shares today to retire early appeared first on The Motley Fool UK.
C Ruane has positions in Dunelm Group Plc and JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023