Retiring by aged 30 is the dream for most young people.
They join the workforce as young adults with vigour and in high hopes, but then reality sinks in – jobs are monotonous, repetitive, paid poorly and consume your most valuable and limited resource – time. The one thing that you can never get back!
Retiring by age 30 doesn’t have to be a pipe dream, but it will be if you don’t make an escape plan now – not tomorrow, not next week – now!
Neither of us achieved retirement by 30 because we started too late. Currently in our early 30’s we are each set to be completely financially free by 35. So, like us, maybe 30 is too late for you, but making that decision and then following it up with the required action will set you free – and soon.
You CAN retire at 30, or within 5 years if you’ve already missed that milestone. Here’s how.
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SPM
The most crucial part in achieving early retirement is to maximise SPM but what the heck is SPM?
SPM is savings per month. In fact, your savings per month is more important than any other factor if the goal is early retirement. But to retire by 30 or within just a few short years means that compound interest or compounding returns doesn’t have enough time to work its magic.
Say that you have an existing stash of £100,000 and you invest for 5 years earning 8%. This will grow your stash to about £147k. That’s awesome but nowhere near enough to retire on.
If you were happy to wait 30 years, that same stash of £100k would grow to just over £1m – now that’s more like it but who wants to wait 30 years? Investing is important, so it’s not to be neglected. Consider it more like KFC’s gravy. Works brilliantly with a delicious piece of boneless chicken but by itself it’s not the secret blend of 11 herbs and spices.
How Much SPM Is Required?
This totally depends on how you will draw an income once retired. If you went down the rental property route, we think you can achieve retirement much quicker than say a stocks portfolio.
The rule of thumb for stock market based investments is that you can draw down an income of about 4% per year without eating into the stash, which is very important to be able to maintain your standard of living and stay retired. We can’t imagine much worse than being forced back to work if the freedom fund ran dry.
So, if the goal is to live on say £20,000 per year, funded by stock market investments, then you would need to build up a stash of just £500,000 using the safe withdrawal rate of 4%. Flex that number to your own goal by just taking the annual income that you want and dividing it by 0.04 or multiplying it by 25. So, if the income goal is £30,000 for example. Take £30k and x25 to get a required stash of £750,000.
Using an online financial freedom or compound interest calculator we can see that to get to £500,000 from £0 in 5 years would require SPM of £6,800 per month and earning a return on investment of 8% per year.
With no investment, and therefore earning 0%, it would require SPM of £8,333 per month. So, you still can’t neglect investing.
If you have longer than 5 years, perhaps you’re aged 20 with more time on your hands, then you can drastically cut down those SPM’s and compounding interest will have an even greater affect. With a 10-year plan you can save about £2,700 per month, if you achieve 8% annual returns. This is still tough but beginning to look a little more achievable.
Excessive Strategy
It’s quite clear that for a normal job an SPM in the several thousands of pounds per month is close to or even impossible. That’s why so few people ever achieve retirement by 30. If you want to achieve the extraordinary, you need to do what few people are prepared to do.
You need to take risks! This doesn’t mean you need to be reckless, but you need to do things that few people are brave enough to do. Knowing this, maybe retiring by 30 isn’t for you. But if you’re still game, here are the key pillars that will enable you to retire by 30:
#1 – Frugality
Frugality alone will never set you free but being stingy leads to a life of cheapness and constraints. A life of less than you deserve.
However, without a sensible level of frugality, the required yearly income will keep on growing meaning the required stash will skyrocket. This in turn will send the required SPM through the stratosphere – much more than it already is.
We are not advocating the frugality that is endorsed so highly by much of the FIRE community. We believe that freedom can only to be properly enjoyed when you have space to enjoy some of life’s little luxuries.
#2 – Investing (with suitable risk level)
We’ve already shown that investing over the short term will not on its own provide a big enough stash to retire on, but it will, subject to your returns, support the goal.
We typically build global ETF portfolios, which we expect to achieve an 8% annual ROI.
You will need to take higher levels of risk. Bonds and cash have historically low levels of return and should be avoided like a hippy avoids shoes.
Equities and property have proven track records of producing higher levels of inflation adjusted returns and we could do with these if we’re serious about early retirement. You can’t achieve extraordinary things by playing it safe.
When investing you will want to keep more of your returns and pay less in fees and you’ll want this whether the goal is early retirement or not.
Commission free trading apps help you minimise fees and we have some generous offers on our website from the likes of Freetrade and Stake.
New customers to these investment platforms can sign up with the links on the Offers page and they’ll give you a free stock to get you started, which can be worth up to £200.
#3 – Debt
Debt should be utilised to drastically ramp up your returns when the interest rate is manageable.
Mortgages and interest-free or even very cheap credit card debt could be used to buy additional assets that can work hard for you. An obvious one is BTL property. You can amass a moderately sized rental empire using mortgages that otherwise would take a lifetime to acquire without leverage.
This also entails not paying down your residential mortgage early and in fact, for the early retirement goal, it is wise to drag out the mortgage term over as long a period as possible to minimise monthly payments.
Contrary to popular belief, you can be retired and still have a mortgage, if your passive income from your portfolio covers the bill. You’ll need to be syphoning off as much cash towards your stash as possible.
#4 – No Pensions
Normally we would at least encourage you to take advantage of your workplace pension as it’s effectively a 100% instant return. However, money locked away until old age is not helping you one iota to reach that early retirement milestone.
#5 – Minimise Tax
To retire quickly, you’ll have to kick pensions to the curb and utilise other tax efficient vehicles. You won’t be able to get rick quick if you have the greedy taxman holding you back. And he is greedy.
Where possible your investments will need to be in a Stocks & Shares ISA and the overflow in general investment accounts. You’ll need to utilise clever tax strategies to minimise tax where possible. Capital gains can be deferred by not selling just yet.
Dividend paying investments would be best placed in the ISA. Growth stocks should be in the general investment accounts. Other forms of income should be done via a company structure as they are far more tax efficient than the punishable tax rates that employees incur.
#6 – Maximise Income By Starting A Business
The most important pillar of all is maximising income. Going down the high paid job route isn’t going to cut it to achieve this radical goal. It might be okay for retiring at 40 but by 30 it’s not going to happen. To save thousands per month you need to make thousands per month and then some. But how do you do this?
If you don’t own the means of your income, then you will never retire by 30. Getting an insanely high salary takes years of graft to climb that greasy pole. You don’t have time for that!
You need a business. We’re telling you this from first-hand experience that you can achieve income growth from a business that is inconceivable compared to what an employee can expect. An employee gets the crumbs, while you can have the entire buffet.
#7 – Scalable Income
Trading time directly for money should only ever be done in an emergency and when learning new skills. Real wealth – the kind needed to have thousands in SPM – can only be achieved by having scalable income.
Scalable income is where the input remains the same, but the output is potentially unlimited. Say you create an exciting new mobile game. Your income will go through the roof but the workload that went into the project was the same whether it was downloaded 10 times or 10 million times. Only pursue scalable projects.
#8 – Network
Don’t constantly hang around with the financial losers that you’ve known all your life. You are the average of your 5 closest friends. If they’re living paycheck to paycheck there’s not much hope of you retiring by 30. Surround yourself by financial winners and wealth will be attracted to you.
#9 – Outsource Everything
The classic FIRE enthusiast and the general public will say, “save some money and do things yourself”. This is nonsense. Every minute not doing value added tasks is time wasted.
Doing low value chores and everything yourself is the path to the middle class – not retirement by 30. Every hour saved is an hour you could be learning more about wealth creation.
