A generation of hyper-disciplined young people are revolutionising the concept of early retirement, bringing the date they ditch the nine-to-five forward by decades.
Nick Marsh from Cheshire is only 30, but already reckons he will have saved enough to retire on in just 17 years and, no, he is not relying on an inheritance.
The “Fire” community aims for “financial independence, retire early” by following extreme long term saving and investing plans. A growing number of disciples have been sharing their exploits online as they race to be financially free, with British subscribers to the Reddit Fire community doubling in the last 12 months.
The idea is that by living as frugally as possible and maximising savings in your 20s and 30s, you can become financially free. The rule of thumb followed by those who subscribe to the philosophy is that you need to have saved 25 times your yearly outgoings.
Once you hit that target, you are considered financially independent, able to live off the return of the savings or rental properties without the use of traditional pensions.
'I earn £75,000 a year – and £16,800 of that goes into my Isa'
Mr Marsh earns £75,000 a year and has calculated that his rigorous savings plan will allow him to retire at age 47.
The 30-year-old salesman estimated that he will need to have saved £900,000 before he can declare himself officially financially independent. He has set aside £75,000 so far but said his forecasts predict he will hit his target within 17 years.
“I should get there by 2038. You might think I’m a long way away but I’m further along than it seems thanks to compounding. In reality when you run the numbers you can see that once the snowball starts rolling, smaller amounts really do build up into a large sum of money,” he said.
He started saving aggressively in 2012 when he got his first job out of university and was setting aside £1,000 a month on a £24,000 salary.
Rather than using the popular 25 times income rule, Mr Marsh said he would rather play it safe and multiply his yearly outgoings (£21,000-£22,000 per year) by 33 times to make sure he would never worry about running out of money. This equates to £700,000 however he said he also plans to pay off his mortgage, requiring a further £200,000.
When the target is finally reached, Mr Marsh has no set plans beyond quitting the rat race. “The main reason I’m doing it is I will be free to do what I wish at that point. I don’t think I’m the type of person who will not do anything. I might continue to work so I can afford more but at least I will have plenty of options.”
The common assumption among Fire subscribers is that you can reasonably expect stock market investments to grow by 4pc each year (after fees) so if savers draw less than 4pc a year as an income then they should never run out of money.
Of the £75,000 already saved, £70,000 of it is invested in one global market tracker fund run by Vanguard, the US investment giant that popularised low-cost index investing, via a stocks and shares Isa which means the returns are tax free. The remaining £5,000 is invested in cryptocurrencies.
'Buy-to-let investing is not the secret to a successful early retirement'
Unlike many others chasing the early retirement dream, Mr Marsh does not plan to secure a regular income using buy-to-let properties. “My issue with property is I don’t want to add more workload to my lifestyle. Every three months I get dividends and I have got to make zero effort to manage it and maintain it,” he said.
Every month, £1,400 goes directly into his savings pot and £400 is set aside for day-to-day living. However, Mr Marsh said he is careful not to deprive himself of what he enjoys. Another pot is earmarked for holidays and of his spending money, £90 a month goes towards his gym membership, where he spends 40 to 50 hours a month. More is then spent on video game subscriptions.
“I’m not scrimping and saving but I make sure I do conscious spending. I put money where it’s worth it for me. In the community we talk about staying away from activities with low returns like people buying a lot of clothes or buying a lot of cars because they lose their value,” he said.
There are exceptions to the rule, however. “You can spend on whatever means a lot to you. If you are a car enthusiast and you buy a second hand classic car you care about that’s fine.
“But you have to remember that you can always have nicer shoes or a better car so where do you draw the line? This kind of spending is a silent killer. You get used to your lifestyle very quickly so you spend more but aren’t any happier.”
Mr Marsh said he and his partner prioritised holidays and made sure the spending plan did not stop them from getting abroad. “We love it, we’ve been to Jamaica, Vietnam, Costa Rica, New York and many other places.”
The trick is to allocate a specific pot of money for each category, he said.
“Just make sure you don’t have a lot of loose money sitting there in one big pot or it will disappear,” he said.
The biggest challenge for Fire fans is having a partner that doesn’t share their passion for extreme saving towards their future, he said. “Luckily, my partner is supportive but some conversations around what to spend money on can be difficult.”