Your Retirement’s In Danger Unless You Take Action Now

There has been a slew of studies released recently on the dangers the younger generations face in retirement, from underperforming pensions over the next few decades.

Some of this is due to worries about future market returns. A lot of it is due to employers making such miserly matched-pension contributions. The main danger though is that most people will take no action to address any of these issues – or will act on it too late.

This video is so jam packed full of charts that we couldn’t recreate it as an article, but it’s essential viewing if you care about retirement. In the video, we’ve gathered up the findings of multiple reports that highlight the dangers heading down the road.

We’ll remind you of the importance of prioritising your pension, and the consequences if you don’t. We’ll look at some shocking statistics about pension awareness, and finally – we’ll tell you what you can do about all of this to get back on track to a comfortable retirement. Let’s check it out!

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The 8 Retirement Blunders To Avoid

Today we’re looking at 8 retirement blunders that you need to avoid. If you get your retirement strategy wrong, you will likely retire poor, and your later life will be unpleasant or even destitute but avoiding these mistakes will help you to retire rich.

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#1 – Not Saving Enough

According to, almost 4 in 10 British adults don’t have a pension, including 1.4 million people who are within a decade of retiring.

Assuming you retire at State Pension age, which will be age 68 for most of our audience including us, then you will need to have enough money tucked away to fund 14 years of retirement if you’re a man or 16 years if you’re a woman based on the UK’s average age of death. And of course, you may live far longer than this, so you need to factor that in.

Required retirement income, by lifestyle

According to a Which? Study, these are the annual incomes needed to fund different qualities of lifestyle during retirement. A single person would need £13k just to pay for the absolute essentials like food and rent. That rises to £19k for a comfortable lifestyle and £31k for a luxury lifestyle. Bear in mind that even the money required for the Essential lifestyle exceeds that of a full State Pension.

Which? go on to state that for a single-person household, achieving a comfortable retirement would mean a pot of around £192k alongside the State Pension to get to an annual income of £19k via pension drawdown, or to reach £19k using an annuity you’d need nearly £306k.

We don’t know how exactly they’ve worked this out, but we tend to use the 4% rule. With the State Pension providing around £9k a year, that means you would need to find an extra income of £10k a year yourself. So, using the 4% rule we would say you’d need a pot of £250k.

Also, many people are paying into a workplace pension without realising how little they are actually saving. The headline 8% that you get on auto-enrolment is total nonsense; it applies only to your qualifying earnings, which is earnings between a lower and upper limit that’s set by the government.

The lower limit is currently £520 a month, which means if your salary is £25k, then you’re contributing 8% on just £18,760. Your total pension contribution is just £125 a month, and remember you need hundreds of thousands at retirement.

Basically, if you’re a low earner, then you’ll barely be making a dent on your required pension size because that lower earnings limit makes up a larger proportion of your overall salary.

Most of our viewers will have even loftier ambitions and will be seeking to retire much earlier than when they qualify for the State Pension, and they might need to fund 40-plus years of retirement. People tend to neglect saving properly for retirement because it always seems like tomorrow’s problem.

#2 – Delaying Investing

Investing works best when it has time to compound. Compound interest or compound investment returns behaves like a snowball. A small snowball can roll and get exponentially bigger and rolls faster as it gathers more snow. This is precisely what happens when you invest. Plus, the more time you give to your pension to grow, the less you have to contribute overall making your monthly retirement savings far more manageable.

Don't delay - start today!

Hargreaves Lansdown produced this excellent graphic showcasing the impact of time on your projected retirement pot. The graph shows how much you will have at age 65 by investing £125 a month starting at different ages. Roughly speaking, every ten-year delay wipes out approximately half of the fund’s potential growth.

We actually think they have been very conservative by only using a 4% growth rate, which even ignores inflation. The impact of time would be even more telling had they based it on say an 8% return, which is what we think the stock market will return on average.

#3 – Never Reviewing Your Pension

Pensions are hardly the most interesting of topics and this is coming from a couple of guys who are passionate about investing. Our problem is that because its inaccessible for decades it just doesn’t have the excitement of a Stocks and Shares ISA – people want to get rich quick, which is the exact opposite of what a pension does. As a result, people tend to neglect the management and performance of their pensions which can be a very costly mistake indeed.

Research done by Hargreaves Lansdown found that only 37% of non-retirees had a clear idea what all their pensions were worth.

The biggest issue is likely to be the default funds being used in your workplace pension. Our research found that most default funds are investing in low performing assets with needless home bias to the UK market. We believe a globally diversified portfolio is likely to give the best balance of high returns and safety due to your exposure being spread across all geographic regions.

If you’re managing your pension investments yourself in a SIPP, which often provide the widest investment range and lowest costs, then it’s vital to review your pension every so often – perhaps yearly. Don’t forget to occasionally rebalance your investments, as over time your exposure to any one fund, stock, or region could drift away from your intended allocation.

It’s also a good idea to review the fees that your pension provider and funds charge. Fees across the industry have been cut in recent years, so always make sure you’re not overpaying with your current provider. We have an excellent guide which looks at all the best SIPPs, so check that out next.

#4 – Turning Down Employer Contributions

The good news is that every employer must pay into a workplace pension if you do. The bad news is that some people don’t take full advantage of this and are effectively turning down free money. Essentially any money you contribute gets an instant 100% return.

There are very few reasons that we can think of where it makes sense to not pay into a workplace pension up to the maximum matched percentage. Otherwise, you’re just throwing money away.

#5 – Only Using A Pension

There are many ways to build wealth and investing in a pension is just one of them. Unfortunately, it seems that the average person – at least those saving for retirement – only ever considers using a pension.

Ben’s (MU co-founder) preferred wealth builder is buy-to-let property. It’s obviously not quite as effortless as a pension but there many other benefits, including leveraged gains and the ability to access the money at any age. In fact, we did an entire article and video demonstrating how you can make 25% annual returns in property passively, which you should check out if property investing is of interest to you.

Another excellent way to build a retirement pot is using a Stocks and Shares ISA. These are very tax efficient as they avoid most taxes such as capital gains tax, which means your investments can grow unopposed from the taxman.

The second advantage of ISAs is you can withdraw the money whenever you like. This flexibility makes them incredible when used alongside pensions as you can effectively retire early and use the ISA to bridge the gap between your early retirement date and when your pensions become accessible.

Our third way we love to invest is using a spread betting account to invest in financial futures. This is super complicated and extremely risky and probably not suitable for most people, but for transparency we’ve included it here.

We use 3x leverage on this part of our portfolios to supercharge our investment returns. If you’re an experienced investor you should check out these articles/videos next [Spread Betting Startegy Overview, Step-By-Step Guide] where we explain exactly how we use spread betting to earn mega returns.

#6 – Assuming The State Will Provide

Research in 2020 found that 1 in 6 workers over 55 had no pension provisions other than the State Pension. Frankly, these guys are in serious trouble. As we mentioned earlier the State Pension is currently a little over £9k a year, which is £180 a week and this does not even cover the most basic of lifestyles.

And don’t assume that you will get the full pay-out either. You need to have paid National Insurance tax for 35 years, known as an NI qualifying year, otherwise you will only get a proportion of it. For example, if you’ve only paid 20 years that is 20/35ths, so you’d only get £103 a week.

In most circumstances you should be able to accumulate 35 years of NI qualifying years, but some people may not if they take a career break for example.  You can always make voluntary NI contributions every year to qualify, for instance if you retired young.

You can easily check your state pension record by searching Google for ‘check-your-state-pension’ and visiting the government’s website.

What’s more, there are whispers in the finance community that doubt whether the government can afford to continue paying a state pension to everyone for much longer. The country is broke, and the state pension is just a humongous pyramid scheme, which relies on current taxpayers to fund the current crop of pensioners.

There is a possibility that the state pension will be means-tested in the future, so don’t count on it being there for you. Personally, we plan as if it won’t even exist, and if it does it’ll be one hell of a sweet bonus for us!

#7 – Failing To Claim Back More In Tax Relief

Tax relief on pension contributions is one of those rare occasions when the taxman gives you something back. The government effectively pays 20% of your total contribution. For higher rate taxpayers this is 40% and for additional rate taxpayers it’s 45%. This means a £2,000 pension contribution could effectively cost you as little as £1,100.

However, the government only automatically adds the 20% tax relief to your pension, and you must claim back the rest if you’re a higher or additional rate taxpayer. You have to actively claim this money back though via your self-assessment tax return or by contacting HMRC directly. Many people are missing out simply by being ignorant of the tax system.

Not claiming their tax relief is one of the most common retirement mistakes people make and is literally throwing money away. Your tax-relief, once claimed, will either be supplied as a rebate at the end of the year, or as a reduction in your tax liability, or as a change to your tax code.

If you’re one of these unfortunate souls, you can thankfully make backdated claims, but you can only claim back any tax relief for the last four tax years.

#8 – Not Shopping Around When You Retire

So, the big day has arrived, and you can finally tell that boss you hate to stick the job where the sun don’t shine. Congratulations! You’re now retired.

You can normally take 25% of your pension as a tax-free lump sum, and after that there are two main ways to draw a taxable income.

One way is Income Drawdown, or Pension Drawdown, which is a way of taking money out of your pension to live on in retirement. The pension remains invested, and the investor draws an income from it.

The other is to buy an annuity from an insurance company, which provides a secure retirement income for life. If an investor chooses this option, they should shop around as rates can vary significantly.

No sensible person would ever take out car insurance or choose an energy provider without running a price comparison first because you know that the providers of such services will always rip off the complacent. The same is true if you take out an annuity from your existing pension fund provider.

According to a 2019 Which? report, shopping around for an annuity can increase an individual’s retirement income by up to 20%.

As a little sidenote to this point, before taking out an annuity be absolutely clear that it’s the right financial product for you. We here at Money Unshackled are not very fond of annuities because the rates are measly, and when you die all the money is usually lost. Those with guaranteed periods where your beneficiaries can benefit after your death naturally have even worse rates.

With your bog-standard single-life annuity, if you die relatively young having just taken it out you may have wasted hundreds of thousands of pounds, which could have been passed on to your loved ones.

Annuities are usually best for those who need a guaranteed income and cannot cope with the whims of the stock and bond markets. We believe the State Pension should be enough to provide a guaranteed income though for most people and should replace annuities as their base layer, to be topped up with riskier investment-based income.

Which of these blunders have you made and what other tips can you give to retirement savers? Join the conversation in the comments below.

Written by Andy


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5 Myths About Early Retirement That Just Aren’t True | FIRE

The topic we love most is FIRE, or Financial Independence, Retire Early. FIRE involves stashing away as much money as you can during your working years so you can achieve financial independence as early as possible – ideally in your 40s or even 30s. At that point you are free to retire should you choose.

In this context, financial independence means you have enough money coming in from passive sources such as investments to cover your day-to-day living expenses.

On our missions to achieve FIRE – in which we’re both progressing nicely – we want to help as many people as we can to get to financial independence with us. But there are a lot of FIRE myths floating around, which are potentially dangerous. What we don’t want is people never starting or quitting along the way due to a misunderstanding of the process. So, in this post we want to set the record straight and dispel some of the biggest FIRE myths. Let’s check it out…

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Myth #1 – It’s All Or Nothing

Probably the biggest myth doing the rounds is that there’s no point even trying because it’s so difficult to achieve FIRE. The naysayers spreading this falsehood believe that FIRE is an event. They see it as you are either FIRE, or not. But that is totally the wrong way to look at it and they fail to see the benefits of just being on the path!

FIRE is a journey with many destinations and goals along the way. There are many degrees of financial independence.

One of the earliest goals for you might be to start living on less than you earn. That’s an achievement that can turn your whole life around in a day. The next goal might be to pay down all your consumer debt – credit cards, store cards, overdrafts, and so on. The advantages of doing this are obvious. You don’t need to have attained FIRE in full to benefit from these smaller goals.

Say you have a goal of producing £40,000 per year passively from your freedom fund, which is what we call our retirement savings. You might have determined that to achieve this you will need a freedom fund of £1 million. On the journey to £1 million – or whatever your FIRE number is – you will probably start with just a few thousand quid. That doesn’t sound like much, but that small amount means life will no longer push you around like a leaf in the wind.

At that stage the passive income is almost non-existent, but a small freedom fund gives you breathing space from life’s little disasters.

As your freedom fund grows there is a noticeable change in life dynamics. For instance, once your pot hits £30k you might have the confidence to negotiate a higher salary because now you have a trump card – you are able to quit your current job and find another without financial fear. The balance of power has shifted from the employer to the employee.

Someone we knew had an engineering job and later his employer tried to make him do sales as well. His finances gave him the confidence to say no, and his employer backed down with their tail between their legs. This guy had a freedom fund and so was able to dictate terms and pull the strings!

As your freedom fund continues to grow you will be presented with new opportunities to make money that are probably unimaginable right now. Maybe someone you know is starting a business, or is taking on a new property project, and is raising capital. You don’t need to have completed FIRE in its entirety to benefit!

Moreover, if your goal was ultimately to earn freedom but you fancy having a bit of that freedom early, you can very easily take a career break and spend a few grand jet-setting around the world. You can continue working on FIRE when you return – no problem.

Myth #2 – You Will Get Bored / Have No Purpose / Can’t Socialise

We’ve tried to encompass all the main criticisms of early retirement into this one super-myth. They’re all total nonsense. The naysayers are clearly jealous and know they don’t have what it takes to succeed. Because they can’t do it, they want to discourage you from doing it.

Come on man, how will you get bored when you have both time and money? Why could you not find or build a purpose? And not being able to socialise is ridiculous. Having your manager choose all your friends is pathetic.

When you’re free you will be able to do more of the things you love. If you want to spend your days hitting golf balls, then there’s a good chance you’ll make friends with people who also like doing the same.

Generally, people who plan to retire early are goal-oriented and driven. Sometimes, and we’re guilty of this ourselves, the FIRE community has a tendency to promote FIRE as if it’s lying on a beach all day in a hammock. While that would be ace for a few weeks it probably would get boring pretty quickly. But you’d go find something else to do.

Those who are keen to retire early are rather looking forward to starting the next phase of their life – one that has gone unfulfilled for far too long due to being a wage slave.

It doesn’t matter if you don’t even know what it is yet – it will come to you later. I’m betting your purpose is not shovelling crap into a skip for somebody else, but that might be what you currently find yourself doing out of necessity. That’s not a purpose!

Once your free time opens up, you’re likely to focus your life on things that truly make you feel fulfilled. This could be charity work, spending more time with family and friends, traveling the world or learning new skills.

And guess what, FIRE does not mean you have to stop earning money. You’re free to pursue whatever you like. If you want to open a small business, for instance a B&B, that normally wouldn’t have supported your lifestyle, well now you can. Cos now you’re doing it out of love, rather than for money.

Myth #3 – FIRE Relies On Extreme Frugality And High Incomes

I suppose this one depends on what your definition of extreme frugality is. Some people choose to get to FIRE by living on rice and beans, living in a dive, and not owning a car nor many other possessions for that matter, but this is just one way. And not the way we would ever recommend.

If you think you can’t be happy without buying designer clothes, driving a fast car, living in the trendy part of town, and holidaying in the Bahamas, despite earning an average salary, then yeah you probably won’t ever attain FIRE.

But somewhere in between those examples lies the sweet spot. For me, I insist on having a certain level of comfort and lifestyle but it’s not luxurious by any means. I have a car – but it’s an old Ford Focus, not a brand-new Tesla. I want to go on holiday – but it’s likely to be in affordable Spain, not the Maldives. I want to eat out – but I choose Nandos, not a three-star Michelin restaurant.

You get the point. You can still do and have all this stuff without it costing the earth, and still achieve FIRE. It’s simply a case of spending less than you earn and investing the rest.

The more you earn the easier it is – we won’t lie about that. Once you’re living your desired lifestyle, every extra penny earned above this is there to be invested and help you reach FIRE.

Truth be told, we’ve yet to meet an early retiree who achieved FIRE by avoiding Starbucks.

Our approach is simple: Decide on your savings per month or SPMs first, and work hard to achieve that goal. Once you achieve your savings per month, spend the rest of your money however you want to – guilt free. If that means buying lattes or takeaways, go for it.

Myth #4 – The Next Bear Market Will Obliterate Any Hopes Of FIRE

This is another complaint by the naysayers. They argue that the next bear market will devastate investment pots, and that future returns will be lower than what they’ve been historically, such that if you were to continue drawing from your freedom fund it will soon run down to zero.

This argument is inflamed by the current lofty valuations of stock markets, especially the S&P 500, which at time of filming is sitting at all-time highs. The S&P’s Price Earnings ratio currently stands at 35, while its median value over history is under 15. You can easily to see why some people might think we’re due the mother of all crashes, capable of wiping out any chance of living off your investments.

Perhaps counterintuitively, a crash might actually benefit the FIRE community. High share prices only benefit those who already have wealth and are retired. For those accumulating wealth and hoping to FIRE in the future, like we are, we’re being forced to pay over the odds right now to buy into the stock market. We would love a crash, and low share prices would only fuel the FIRE community’s growth!

As for those who have already FIRE’d we don’t think there is too much to worry about from a bear market. For a start there are many studies that have analysed safe withdrawal rates such as the one carried out by William Bengen and then later the Trinity study.

Champions of the FIRE community have also come up with strategies designed to weather a bear market. One such strategy is to have a big pile of cash that can be drawn from when the stock market has tanked. This ensures you are not selling your investments at knockdown prices.

Another strategy or extension to the cash pile strategy is to build a high-yield, dividend portfolio, so even if the market crashes, you don’t need to sell off your investments. High dividend stocks tend to be more stable because they’re in mature, often monopoly like, industries.

And let’s not pretend that once you’ve FIRE’d you won’t be reacting to the market. The idea of FIRE is not to shrink your expenditure if the market tanks, but it remains a tool in your kit – at least until the market recovers.

And that leaves us with perhaps the biggest myth-buster of them all, which is your ability to earn money. When you consider that most people who achieve FIRE are ambitious and driven people who are good at making money it seems highly unlikely that their freedom funds will ever run dry.

Many who “retire early” find themselves continuing to make money following their passions. Take us for example. The day we hit FIRE doesn’t mean our income from Money Unshackled will suddenly come to a grinding halt. Sure, we might post videos less frequently but even as multi-millionaires we can’t see a day where our passion for helping people to make money would stop.

Myth #5 – Society Will Collapse If Everyone Reaches FIRE

This is a hilarious one because it’s never going to happen anyway. Only the truly committed will ever achieve FIRE and most people just aren’t. However, let’s play along and assume it did.

The people peddling this myth are implying that your plans for FIRE are in some way immoral – that you being free is damaging society. They don’t really believe that and secretly they just resent you because you’re doing something they can’t.

They question: who will serve you in the shops? Who will clean the toilets? Who will collect the rubbish bins? Who will cook in the restaurants? Of course, all this is total nonsense. Society would be far superior if everyone wasn’t broke. And remember it takes a long time to get to FIRE, so the country would still have a workforce.

As part of the FIRE community, even if you’re not directly doing it yourself, you will be investing money into companies that are changing the world, inventing new technologies and developing new life-saving drugs.

Plus, while you’re working a 9 to 5, you’re not spending money in society. But when you’re financially free you will be out there living, and the economy will grow because of it.

At the end of the day many people want to stay productive and are happy to work when the conditions are right, and the choice is theirs.

What do the people around you think about FIRE? Join the conversation in the comments below.

Written by Andy


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The 3 Essential UK Dividend Stocks For Any Retirement Portfolio

You guys know we spend a lot of time searching for the perfect investment portfolio that will get us to retirement, but also keep us there. There’s only space for quality here – all killer, no filler.

We want the best index funds, the best properties, and… the best individual stocks. This article is looking at the stocks that we think are suitable for holding from today right through to retirement, whenever that might be for you.

These stocks need to be evergreen – they need to be companies with strong roots and staying power. But they also need to be powerful dividend stocks for the stability and cash flow they provide – UK dividend stocks specifically so we can avoid nasty foreign dividend withholding taxes.

And ideally, they’ll be in essential industries – even better, near monopolies with impenetrable barriers to entry for potential competitors.

We think we’ve found 3 such stocks that fit the bill. Let’s check it out…

Much of the research for this article was made possible due to our subscription to Stockopedia, the premium stock picking research and analysis tool for investors. Try Stockopedia for yourself with a free 14-day trial at the special offer link here, which also gives you a 25% discount off your membership if you decide it’s for you.

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Essential Retirement Stock #1 – British American Tobacco (BATS)

Tobacco, you say? No way! That’s a dead industry! Hear us out.

This company is one of the best we’ve seen in a long time and has been top of our list for a while now. Its finances are killer, and we’ll get to those in a bit. Spoiler alert: it has a sustainable 8% dividend!

But its current finances mean nothing if it’s not going to be around for your retirement. Let’s address those concerns first.

At the start of this piece we hinted at 4 criteria for any retirement stock. These are:

  1. Essential Industry;
  2. Barriers To Entry and an Economic Moat;
  3. Strong Roots – a large cap stock with staying power;
  4. and Kick-Ass Dividends!

Ideally the stock will be reasonably priced too, but that’s not so much of a concern if you’re holding it forever and it pays a good dividend.

So does BAT tick all the criteria boxes? The first one was Essential Industry, and it is indeed essential to the many tobacco addicts around the world! Its customers are physically compelled to keep buying its products.

There is a reasonable worry for shareholders that the number of smokers is declining globally.

This chart from the World Health Organisation shows that more countries are in the “declining usage” side at the top of the chart, than the “increasing usage” side at the bottom. Note that these are percentages of adults in each nation, but population sizes are forever expanding which will offset this decline to some degree.

They are already diversified as one of the world’s leading vaping and e-cigarettes producers as an alternative to tobacco, which is maybe the future of the company long-term. There also exist opportunities to expand into cannabis in the countries which it becomes legal in, which we expect will be a fair few over the coming decades. BAT have indeed just acquired a £126m stake in Canadian cannabis firm OrganiGram.

As for Barriers To Entry, who else could possibly compete with BAT? It’s illegal or difficult to advertise smoking products in most of the big markets BAT sells in including the UK, USA, Europe, Australia and NZ and much of Asia, which means this already established giant can exist unopposed by new entrants to the market.

BAT doesn’t need to advertise anyway – their brands are well established in their markets and saving all that money on marketing means they can pay out a bigger dividend. They rake in money, and they pay it straight out to you.

It has Strong Roots, present in 180 markets with 150 million daily consumer interactions from a dedicated pool of customers providing steady cashflow. BAT has been around since 1902 and has a market cap of £61bn.

Looking more closely at its finances now, its dividend yield is around 8% and forecast to grow, but we can see that this is not an anomaly – it’s actually at a sustainable level.

That’s because its dividend cover is consistently over 1 – anything over 1 means it can easily afford the dividend, and is the case for at least each of the past 6 years, with this forecast to continue.

The dividend yield looks overly inflated because the shares look oversold, which we’ll take a look at in a sec.

In 2017, it bought out the second largest tobacco company in the US, Reynolds American, a major landgrab invasion to grab an even higher stake of the American market. BAT have taken what is theirs, as global tobacco kings.

This left them a load of debt – but they are committed to paying this down a bit every year and have been doing so. Their revenue and profits are massively up since the acquisition.

BATs finances look so solid it appears they haven’t even realised that there’s a pandemic going on – profits just keep on growing!

Despite all this positivity, the price of BAT is ridiculously cheap. Its 12-month future forecast PE ratio is 7.8, Stockopedia showing us that this compares very favourably with the industry and with the wider market.

The EV to EBITDA, which is a slightly more accurate indicator of price as it factors in debt, is 9.6 – still very cheap. BAT is clearly under-priced when you add in the sustainable dividend.

The market has decided it doesn’t like BAT – its share price has plummeted over the last 5 years – probably due to overdone fears haunting the tobacco industry. Despite these fears, 21 institutional analysts are saying it’s a Buy.

We think this jewel of the British crown has been overlooked in favour of trendy new socially responsible stocks and green technologies. But don’t write tobacco off if you want to earn big, long-term dividends.

Essential Retirement Stock #2 – BAE Systems (BA.)

OK, we’ve invested in lung cancer with a tobacco company, now let’s buy some guns and bombs…

Seriously we didn’t plan it like this, but it seems to be that the so-called Sin Stocks are the ones to buy for long-term dividend success.

If we’re talking morality though, we like to remind ourselves that smoking tobacco is a personal choice, and without a well provisioned military to defend us we’d all be speaking German.

BAE Systems is one of the UK’s main arms, security, and aerospace companies, but it’s reach is much bigger than Britain. It has a global presence, being the largest defence contractor in Europe and ranked third-largest in the world based on 2017 revenues.

When China starts raining fire down on the West, we’ll be glad that BAE is there to have our backs.

BAE’s customers are national governments, supplying the essential bits and bobs for their armies, navies and airforce.

They’re also heavily involved in cyber defence for nations, which is going to be a growing problem for the world to deal with as advances like quantum computing come into play.

They have a big Barrier To Entry in they are practically a monopoly provider for some of the world’s richest countries. Let’s look at their finances to see if they have staying power.

Stockopedia was red-flagging a potential liquidity risk for us to research further. On inspection, it’s because its debt has shot up in the last couple of years.

This is fine because we know that its revenue comes from governments, most of which are able to magic money out of thin air from their central banks. They won’t be defaulting on their contracts. Total debt is only 2x annual profits – not high by any standard.

BAE has been supplying governments with weapons since 1902, surviving much worse than a bit of covid related liquidity worries.

Their revenue is growing consistently, as is net profit. As are dividends, and dividend cover. A yield of 4% and forecast to grow is good, and it is sustainable. This is company that’s not going anywhere, other than up.

And like BAT, they have an incredible Stock Rank in the 90s (of 100), cheap PE ratio for their industry and a cheap EV to EDIBTA ratio. In fact, BAE is more cheaply valued than all but one of its international peers in the defence sector.

Essential Retirement Stock #3 – National Grid (NG.)

National Grid is the definition of a stock with an Economic Moat. How could it have any competitors? It owns pretty much all of the electricity delivery networks in the UK.

Its cables, pipes and pylons criss-cross across the country, an essential part of the system that delivers power to all our houses and businesses: from power source, to lightbulb.

National Grid enables our economy to function. We’d go so far as to say that without the assets it owns, there is no economy. That’s a big tick for Essential Industry.

Its cables do not discriminate between green power and dirty power either – it is transporting electricity, which makes your TV work the same no matter the source. This means dependable revenue and stability for its share price.

That said, work is constantly ongoing to keep the network fit for purpose in a cleaner energy future, and to keep expanding the grid. It’s selling off its gas pipelines and buying up more electricity assets in recognition of the move away from fossil fuels.

Projects include 24 miles of new tunnels deep under London to ensure reliable electricity supplies for the next 120 years; it’s also just finished a new 3-mile tunnel under the River Humber to transport 25% of Britain’s remaining gas needs.

They’re also building the world’s longest undersea electricity cable to connect the UK to clean hydro power direct from Norway’s fjords, and a boat load of new revenue for its shareholders.

It has operations in the US too in New York and New England to diversify its income streams – in fact 45% of its operating profits came from its US operations in the year to March 2021.

On the face of it, National Grid has ridiculous levels of debt, at 18x its net profits. But it’s not a normal business model – its revenue is completely steady and predictable, and the company’s services will be required for many decades, even centuries to come. It has no liquidity problems as a result of its debt, with average current and quick ratios and a decent interest cover.

Dividend yield is rock solid at over 5% and forecast to grow, with dividend per share creeping up and forecast dividend cover expected to be comfortable.

It’s probably not a great time historically to buy into this stock, with an average PE ratio, and a really bad EV to EBITDA ratio relative to its industry.

But can we really compare National Grid to any other company? It’s got a monopoly in the UK – and there’s nothing else quite like it.

Frankly, this is one of those times when the price shouldn’t really matter too much, as long as the dividend yield is acceptable to you, which at 5%+ it likely will be. This stock is one to hold forever and grow fat on the dividends.

Who Wants More Stocks?

If you liked this post and want even more stocks, then let us know down in the comments here or over on YouTube. There were too many stocks to cover here and give proper justice to them all.

Or, filter for the best stocks using the tools on Stockopedia. If you want to expand your portfolio of UK dividend stocks, go grab yourself a Stockopedia subscription and start digging. Remember, the first 14-days are free with our special link and it’s 25%-off thereafter.

What do think are the best stocks to retire on and why? Join the conversation in the comments below!

Written by Ben


Featured image credit: Matt Gibson/

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Should You Just Live In A Caravan? | Extreme Financial Freedom Now?

When you’re several years or even decades away from your financial freedom goals, your mind turns to crazy ideas to speed up the process. Could you just sell up the house, ditch the mortgage, buy a caravan, and declare yourself financially free? Thoughts like this have surely crossed your mind if you’re pursuing financial independence but are still years away from retirement.

After all, a holiday home at a beautiful caravan park by the sea might cost £60,000 to buy – that’s a damn sight cheaper than any house made of bricks, other than in the most deprived of areas.

You wouldn’t want to live in a cheap, run-down 1-bed flat in a horrible area for the rest of your days. But maybe a static caravan in a gated community wouldn’t be such a bad way to live, for the same upfront price.

Or maybe you’d like to tour the world in a mobile home? Is that much cheaper than owning a house?

If you could drive down the most significant cost of living – housing – while still enjoying life, that would be a great way to reach retirement earlier.

In this article we’re looking at the real costs of doing exactly this; whether it’s a feasible early-retirement solution; and how many years it can knock off your working career. By the end you’ll know whether this early-retirement strategy lifestyle is right for you.

Alternatively Watch The YouTube Video > > >

The Dream

The dream for many in the financial independence community is to retire young, or at the least, earlier than the state pension age.

The dream will usually involve travel, or spending your days on the beach, or just escaping the hustle and bustle of city life. Why not do that right now by buying a cliff-top static caravan overlooking the sea, or a motor home to drive around Europe in?

If it means you’re not having to pay a big mortgage each month and you get to see more of the world, it sounds on paper like an exciting (if radical) route to financial freedom.

Stated in financial independence language, it feels like it should allow you to reduce your required retirement pot size, and hence the number of years until you can retire – perhaps right down to today.

Retiring Earlier

We’ve built a handy early retirement, or FIRE calculator, here, that you can use to work out how many years away you are from retirement; and crucially, how big your investments need to be to get you there.

That’s how big in £s your retirement portfolio needs to be to allow you to live fully off the income that those investments provide.

To kick start your own investment journey, check out the deals on the Offers page which include a free £50 cash bonus when you open an investment account with InvestEngine or Loanpad, or free stocks when you open accounts with Freetrade or Trading212, plus a bunch of other stuff. Our investment guides will help you to choose the right platform or pension provider for you.

As an example, the required portfolio size for my family to retire early is £900,000, which should allow us to withdraw an income of £36,000 a year using a 4% withdrawal rate.

But that’s based on the assumption that we’ll continue to live in a house worth £300k at today’s value of money in our early retirement. If we could make a trade-off of living space for a reduction in living cost, maybe that retirement pot size could be a lot smaller, and we could start living our best lives sooner.

Static Caravans

Let’s kick off with the actual costs involved in rebooting your life in a static caravan overlooking the sea in the UK. This involves living at a holiday park in a holiday home like this one, with on-site facilities typically including a shop, a pub and kids’ clubs, in a community of like-minded people.

Is it cheaper than running the average UK home? You’d better hope so, since you’ve got just a tiny fraction of the floorspace!

Yes, it IS cheaper, but not by as much as you might expect:

Let’s kick off with the actual costs involved in rebooting your life in a static caravan overlooking the sea in the UK. This involves living at a holiday park in a holiday home like this one, with on-site facilities typically including a shop, a pub and kids’ clubs, in a community of like-minded people.

Is it cheaper than running the average UK home? You’d better hope so, since you’ve got just a tiny fraction of the floorspace!

Yes, it IS cheaper, but not by as much as you might expect:

Fig.1: Static Caravan Annual Costs vs Average House

The standalone costs of running a £250k average house are around £8,400 a year by our estimates – this excludes ever-present costs like internet, which you’ll be buying regardless of where you’re based. The saving you’d make by moving to a static caravan might just be a couple of grand a year.

If you look at the split of the costs, the big ones are caravan depreciation, and site fees. A big problem is that caravans have a life of around 20 years, before they depreciate down to nothing.

They are made of plastic, wood and sheet-metal, and are not built to last forever like a house is.

Surprisingly, there’s not a great deal of difference between buying new or buying second hand – an average second hand one might cost £30k and last you 10 years, while an average new one might cost £60k and last you 20 years – either way, it costs you about the same, as a yearly average.

The site fees really sting you, with even a mid-range site costing £2,500 a year. You could cut these fees to £1,000 a year if you were happy to pretty much live in a field with no facilities other than your gas, electricity, and water.

If you went down the static caravan route to retire faster, you might shave up to £83k off your required portfolio size.

Not exactly life-changing, but – (a) you do get to retire a little sooner, and (b) if you wanted to live like you were on a permanent holiday now, this ticks that box.

The Max and Paddy Option

Statics are expensive, no doubt. But motor homes and campervans ought to be a lot cheaper, as they’re smaller and your standard of living is far less luxurious.

But as this is a life on the road, it may only appeal to a certain brand of financial freedom fighter who pictures their early retirement being one of travel and exploring the world.

Here’s a couple of options – a decent 4-Berth tourer, and a little 2-Berth campervan, both making use of campsites around Europe:

Fig.2: Campervan Annual Costs vs Average House

This lifestyle would fit someone who was able to work remotely from their laptop.

The tourer works out as a more expensive lifestyle than the static caravans, and just a little cheaper than owning an average house. The little campervan saves you the most money, reducing your required retirement pot size by £92k.

What’s obvious from these numbers so far is that taking the radical step of selling your home to live a cheap life in a caravan isn’t all that realistic financially.

It’s not the extreme early retirement shortcut that we had hoped it would be.

It CAN Be Done Cheaper

The site fees are the real killer, and could be avoided if you really wanted to make this lifestyle change work.

In the UK, campervans are allowed to park at the side of most roads overnight, and you’re allowed to sleep in them. If you’re travelling in England and Wales, there are still places that you can go wild camping, such as the Lake District and parts of Dartmoor. You’d have to source your own gas, and presumably use public washrooms.

But this could shave nearly £150k off your required retirement pot size (3rd column):

Fig.3: Doing It Cheap

If this was the lifestyle you wanted to live in retirement, you might only need £300k or less in total to draw a very basic income, so this saving is significant.

You could also go really cheap and live in a knackered old caravan in the wilderness or even on an old canal boat for just a couple of grand upfront cost, with no site fees.

For the static caravan enthusiasts, make sure you pick a site that allows you to rent your caravan out to tourists. You could make back a few grand a year by renting it out while you go on your holidays elsewhere.

Other Things To Consider

While you own a house, you’re on the property ladder, and your property is likely going up in value. Not only that, but if you have a mortgage, you’re getting leveraged growth on your equity due to the mortgage debt.

If you have a 10% deposit in the house and a 90% mortgage, and if property prices go up by 10% one year, your equity just went up 100% (which is the 10% rise in house prices divided by the 10% deposit).

If you own a caravan instead, your money has likely been either (a) used to buy the caravan, (b) sat pointlessly in a bank account, or (c) invested without leverage in somewhere like the stock market.

You could of course keep your property and rent it out to someone else to cover all the bills, while you move into a caravan. This could be the best of both worlds.

You should also consider that the cost of saving up to buy replacement caravans never stops, while at some point the mortgage interest payments would stop on a house, once your mortgage is paid off.

These advantages of property are difficult to quantify and depend on your own circumstances. But this next point is pretty universal: UK winters suck!

If you really wanted to go down the caravan route, just remember how cold it can get in January, sat in a glorified shed on a cliff top.

A Nice Holiday… But A Retirement Hack?

Having a second home at a caravan park is a nice way to spend the summer if you can afford it – but it’s probably not worth having one as your main residence as an early-retirement hack.

That said, if you’re up for this lifestyle one day in the future when you’re actually retired, it’s good to know that it is a slightly cheaper way to live and you can still factor this annual living expense reduction into your retirement plans.

Or if you’re at the point now that you could declare yourself financially free with a caravan, then the benefits of staying on the property ladder might no longer interest you – you’re free, so it’s mission accomplished.

Alternative Early-Retirement Living Arrangements

Let’s face it, the reason you might be even considering living in a caravan is because housing is so damn expensive in the UK! Here’s a few other ways we can think of that get a similar result in terms of speeding up your early retirement date:

#1 – Move Abroad

If you’re willing to live in a caravan, then you’re probably willing to do just about anything to retire early. So why not move abroad to somewhere super cheap?

Places like Thailand and Spain are great places to stretch your money to the max. Obvious hurdles to overcome are the language barrier, and being far away from family and friends.

This lifestyle is suited to someone who can work remotely from anywhere, which as this last year or two has shown, is perfectly possible for most office jobs.

If you can work for your company from your bedroom during lockdown whilst getting paid in British pounds, you can also do the same work from a cocktail bar in Thailand and be paid in British pounds. With the cost-of-living difference, you could live like a king.

#2 – Co-Habit

This one is all about getting someone else to pay towards your mortgage, or splitting the cost of a place that you rent with friends. You could rent out a room in a house you own, or you could group together with friends to buy or rent a house together.

You could even convert a house that you buy into a duplex – two entirely separated homes within one building. This should add enormous value to the property, and means you can rent out half the building to a tenant for a regular income.

#3– Just Downsize A Little

It doesn’t have to be all-or-nothing. You could downsize your home a little, or maybe move to a cheaper city.

If you can save even a few hundred extra pounds a month on your mortgage and bills, that could go a long way towards reaching your early retirement goals faster.

Is downsizing to a nice static caravan or mobile home something you’d ever consider, or something you’ve already thought about? Join the conversation in the comments below!

Written by Ben


Featured image credit: Duncan Cuthbertson/

Static Caravan image credit: gbellphotos/

Campervan image credit: Andrey Armyagov/

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

The Early Retirement Danger Zone | Hack The 4% Rule & Hold Onto Your Money Forever

Followers of the FIRE lifestyle will have heard of the 4% safe withdrawal rate and will be aiming to build an investment pot using this rule that’s large enough to provide them an income when they’ve retired.

The problem with the 4% rule is that it lulls us freedom fighters into the false sense of security that following a simple formula will guarantee us a set level of income in retirement.

But because your freedom fund contains a range of investments, the value of your pot will be volatile. What is worth £500,000 today could be worth £400,000 tomorrow. Or £600,000. You just don’t know.

The first 5 years of your FIRE retirement are what we call the Early Retirement Danger Zone. You have no state pension to fall back on because you’re too young, so you need your investments to perform.

But what if they don’t? What if there’s a market downturn? Using the S&P 500 Index as a measure, there have been 16 bear markets since 1926, averaging once every six years.

Today we’re going to tell you how to hack the 4% rule, force it to work for you, and make sure you can safely retire early while holding onto your money forever!

Special offer: New users to Genuine Impact will receive 1 month’s PREMIUM access for free when you sign up via this link. Genuine Impact is research and analysis app that provides insights for investors. Be sure to check them out!

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The 4% Rule And The Problem Of Retiring Early

As a brief recap, the 4% rule says you can withdraw 4% per year of the value of your retirement pot on retirement day, adjusted each year thereafter for inflation.

The origins of the 4% rule started with the famous Trinity study, which backtested the performance of retirement portfolios built from a range of different stock and bond mixes and withdrawal rates covering the period from 1925 to 1995.

The stock market studied was America’s S&P 500, and it was determined that portfolios built from 100% stocks or a 75/25 stocks to bonds split had around a 95% chance of surviving for 30 years.

The study was set up to provide answers for people retiring in their 60s, hence why a 30-year portfolio survival period was chosen.

Unfortunately, this implies that those retiring earlier are at risk of running out of money during their retirements.

With a 95% success rate, this means 5% of people should expect their freedom funds to run down to zero within 30 years of their FIRE date, based on the history.

Here’s a chart that shows the results of a 100% stocks portfolio with starting dates in each of the years from 1871 to 1989:

6 out of 119 tests resulted in going bust. But even if you DON’T run out of money after 30 years, you still might easily end up in the 24% of people whose portfolios’ values were down – people who wouldn’t be able to keep withdrawing enough to live on without eventually depleting their investment pot.

In almost all cases, the damage was done in the initial years, and whether a pot survived its owner or not came down to the events immediately following the retirement date.

Sequence Risk

The greatest risk to your portfolio comes in the first 5 years or so after retirement.

This is because if the stock market were to fall in those early years, it would likely reduce your pot to below the level at which you could safely continue to draw from it at the same rate. Even when the stock market recovery eventually comes, your pot may be too far gone to recover while also sustaining your withdrawals.

While for example, if your first stock market crash came a decade after retirement, you would have built up a 10-year buffer of growth that could happily be eaten up by a future bear market without your withdrawals being affected.

This risk is known as Sequence Risk, and it is the risk of the good times and the bad times happening in the wrong order, or the wrong “sequence”.

According to AJ Bell, the average time it takes for the stock market to recover based on the last 10 bear markets prior to covid was 648 days – nearly 2 years.

The shortest recovery in history was the covid crash, which lasted only 4 months.

While the longest was 1,529 days – just over 4 years – following the 2008 financial crisis.

If you can set a plan in place to protect yourself for the first 5 years of retirement without needing to eat into your pot, this would nip the sequence risk in the bud.

You’d be covered for repeats of the historic worst-case scenarios, plus a bit extra. Get past this opening phase of your retirement, and you should be into clear waters.

Your FIRE Number

First, you need to know your FIRE number. This is calculated as your required living expenses in retirement divided by 4%, if you are using the standard safe withdrawal rate.

You can calculate this easily and get more information including the years until you can retire by using our free FIRE Calculator.

Try playing with it to see the effect of tweaking the rate of return on your investments, or by cutting your expenses a little, or adopting a higher or lower withdrawal rate. The difference will likely shave years off your working life.

The FIRE number is the size that your savings and investments need to be before you can retire. The usual assumption amongst those seeking early retirement is that this number, once reached, is set in stone.

But what if the stock market falls the day after you reach your number and quit your job, and what was once a £1m pot is suddenly worth only £700,000?

You’ve stopped working to start living. Do you have to change your plans and forget about retirement? Stop living and start working?

Protecting Your Nest Egg

The 4% rule can be adapted to protect your financial freedom fund in those first years of retirement, in case the market goes south right after you’ve told your boss that they’re fired.

We just need to add on one or two extra rules into the mix.

Both of these rules are fairly common sense, but the first time we saw them named and singled out for discussion was in Kristy Shen’s book “Quit Like A Millionaire”, so due credit to her.

Rule #1 – The Cash Cushion

The very worst thing you can do in a stock market crash is sell. And yet, as a retiree living off your investments, you may have little choice but to do exactly this.

This is where the cash cushion comes in.

Say your FIRE number is £1,000,000 – the amount you’d need to retire, covering your outgoings of £40,000 a year at the 4% rule.

You need to be able to avoid selling investments for up to 5 years.

To cover your outgoings during this time, having a cash cushion of £200,000 would mean you could eat this up first without ever having to touch your investments.

£200,000 sounds like a lot of extra cash to have to build up. But hold up. A balanced portfolio might already include cash in the region of 10%, so you can splurge on opportunities, but also to cover you in scary situations exactly like this.

So, a £1,000,000 freedom fund might already contain £100,000 of cash, meaning you need to find just another £100,000 to cushion you in your early retirement years.

As a counterpoint, it’s worth noting that if you did save up an extra £100k before you retired, you could invest it instead, and it would reduce your required withdrawal rate from 4% to a safer 3.6%. But it’s not clear that this would be safe enough if you were making withdrawals during an initial market crash.

In any case, while you’re building your pot, it probably makes sense to keep that extra money invested in the stock market so it can grow, rather than being held as cash, and convert it into your cash cushion just before you retire.

Rule #2 – The Yield Shield

Still, having to increase a freedom fund by £100,000 seems like a lot of extra hardship. We can get this number down significantly if we build a yield shield.

The yield shield brings in dividend stocks to your portfolio to give you extra protection in the first 5 danger years, after which point you can switch back to your preferred allocations.

Stock market returns are a combination of capital growth plus dividends. Stocks which are likely to provide decent capital growth but little dividends are called growth stocks. Stocks which provide little capital growth but good dividends are called dividend stocks.

The theory is that dividend stocks can better hold their value during a downturn due to being stable, established companies, and in most cases should continue to provide a dividend to you regardless of what is going on with the share price.

Normally we prefer growth stocks, as their total returns tend to be better and they avoid all dividend taxes (including the nasty foreign dividend withholding tax). But during the early danger phase of your retirement, less volatile, cash flowing dividend stocks may help you to better hold onto your money.

The yield shield works by switching out your portfolio on retirement day to a portfolio that keeps a similar geographic mix to what you already have, but focusing on high-yielding dividend stocks.

After the first 5 years, you’d switch back.

In practise it could work like this. If you’re currently tracking a global stocks index with a fund like the Vanguard All-World ETF (VWRL), you could temporarily swap it out for the SPDR® S&P® Global Dividend Aristocrats ETF (GBDV).

This ETF tracks an index of top-quality dividend payers, with a weighted average yield of 4.85%, while the Vanguard All-World ETF typically yields around just 2%.

In the event of a downturn, you would in theory be ok as the 4.85% yield covers your 4% withdrawal rate, although in practise some of the companies would stop paying dividends.

This specific Dividend Aristrocrats fund though only admits companies with a 10-year track record of payouts, so you’d hope this effect would be minimal given bear markets happen more often than that, roughly every 6 years.

The yield shield means you don’t need nearly as big of a cash cushion – in theory, none at all, though we still think it’s sensible for diversification and risk reasons to hold 10% of your pot in cash regardless.

This is therefore a good alternative solution which allows you to retire on your FIRE date with your standard FIRE number and with peace of mind.

The 3% Rule

Much of the stress around retiring early could be resolved by adopting the 3% rule instead of the 4% rule.

A recent continuation study into the safe withdrawal rate extended the Trinity study period to 2017, and here’s the results:

The 4% rule for a 100% stocks portfolio still has around a 95% success rate after 30 years, now down slightly to 94%, and tails off over the decades.

But the success rate of a 3% withdrawal rate does not tail off – even after 40 years, it remains at 100%, meaning that EVERY portfolio tracking the S&P 500 since 1926 would have survived for at least 40 years.

But for us, we don’t want to be running to the safety blanket of the 3% rule.

This is because, using the MU Fire Calculator, a £1m required FIRE number becomes a £1.33m target by moving the withdrawal rate slider. And for this particular example, the years until FIRE move from 14 years at 4% to 18 years at 3%.

Could you be bothered to work an extra 4 years and build up an extra £333k if there was a smart alternative such as the cash cushion or yield shield, which meant you could retire today?

What’s your FIRE number and are you relying on the 4% rule? Check out the calculator, and join the conversation below!

Written by Ben


Featured image credit: Einstock/

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday:

Want To Retire Early? Pick Your FIRE Strategy (FAT/LEAN/COAST/BARISTA)

The Financial Independence and Retire Early movement is not very old but it has gained a lot of traction in the investing community.

If you’re a financial freedom enthusiast, you’ll have probably heard of FIRE. But have you heard of Lean FIRE, or Fat FIRE, or the other types?

We can all focus too hard on retirement and forget that the journey is supposed to be enjoyable too.

The method of FIRE you apply will require sacrifices, whether that be in time, effort or luxuries, so it’s good to know that a number of options are available for you to choose from which all arrive at some variation of the same end destination – financial freedom.

By the time you’ve read this post, you will know what kind of FIRE plan is right for you.

Commission-free trading platform Stake are giving away a free US stock worth up to $100 to everyone who signs up via the link on the Money Unshackled Offers page, so be sure to check that out!

Alternatively Watch The YouTube Video > > >

Many Routes – Same Dream

Freedom means different things to different people. For some it is the freedom to leave a high stress career in favour of doing something you’d enjoy, but which doesn’t necessarily pay well.

For others it means nothing less than the jet-set celebrity lifestyle starting ASAP, and never having to do a day’s work again.

Others still crave the end of employment but don’t need the fancy car or the big house and can find happiness on a campsite or on the road.

There’s a FIRE solution for each and every one of them. So, what are the main broad paths you can take to financial freedom?

#1 – Barista FIRE

Barista FIRE is FIRE at its most basic – it doesn’t even necessarily end in you leaving the rat race.

All it buys you is semi-retirement, but it is much more achievable because of that.

The idea is simple. You accumulate your freedom fund to cover some of your expenses, but not all.

This might involve setting a target retirement fund size of say £250,000 to pay you a £10,000 a year income in retirement at the 4% safe withdrawal rate. And you make up the difference between your investment income and your outgoings with part-time or enjoyable work.

For many, nothing short of full financial freedom will be good enough. But for those who don’t hate work, Barista FIRE offers a sensible half-way-house approach to freedom that’s doable for everyone.

In practise, it would work like this – any money you invested during your life up until the age of, say, 50, would be working for you and paying you out a small income thereafter.

If you need £20,000 to survive on in your early retirement, and your investments are giving you an income of £10,000, you only need to earn a further £10,000 from employment once you leave your main career behind you.

The effect this could have on your lifestyle is massive – the difference in happiness between a high powered corporate career and a £10k job can be worlds apart.

A job that brings in just £10k might involve 3 days a week doing something less pressured, or even enjoyable.

Or for those of you making the big bucks, making up a £10k shortfall might involve putting on that business suit for just a few weeks in the year as a contractor, and living the retired lifestyle for the rest of the year.

The second way to Barista FIRE is to let your spouse continue working while you put your feet up, though it would take a special kind of partner to tolerate that set-up!

But as long as SOME money is trickling in from employment to supplement your small investment income, you would technically be doing Barista FIRE.

And FYI: the name “Barista FIRE” comes from Starbucks – one of the original US companies to offer part-time workers health insurance, which makes this strategy possible in America!

#2 – Coast FIRE

Coast FIRE is best described as investing enough money at a young enough age so that you can stop contributions mid-career, live affluently for the second half of your working life, and still achieve financial independence sometime in the future just by “coasting” along.

The goal behind Coast FIRE is to massively increase your savings rate early on in your investing journey by piling money into your portfolio.

There is a mathematical tipping point where the money invested is enough to grow with compounding returns to an amount big enough for early retirement without needing any additional contributions.

If you start early enough, and are in no great rush, you don’t need that much invested because you have decades worth of time for it to grow without further effort on your part.

For instance, both of us at Money Unshackled could switch to Coast FIRE fairly soon and it would be job-done.

Our existing portfolios are almost big enough that they would grow over the next 20 or 30 years so that we would be able to retire with a basic lifestyle.

Someone aged 20 could spend 10 years squirrelling away £150k and then stop worrying about investing – 25 years later they could be retiring in their mid-50s with the equivalent of £500k at today’s value of money, factoring in inflation.

By choosing Coast FIRE, they could then massively increase their standard of living in their 30s and 40s by not needing to invest further.

So, Coast FIRE is for investors who are happy to buckle down and scrimp-and-save hard in their 20s, and then forget about their investment pot and live life to the max while remaining in work.

In a way, it’s the middle-class dream, but without the poverty in retirement that comes from spending all your wages on conservatories and BMWs and forgetting to invest. And all it costs you is a few years of initial financial responsibility.

#3 – Lean FIRE

Lean FIRE is for people who prioritize leaving the workplace over a comfortable retirement. You want to retire in full, asap, and are prepared to live a minimalist lifestyle in retirement as a consequence.

For this kind of FIRE you probably need a pot of around £300k – what is probably the baseline to survive in retirement, which provides a small income but with practically zero home comforts.

For investors on the Lean FIRE path, the baseline is also their finish line.

The principles remain the same as other FIRE types. You save enough money to cover your expenses in your retirement using the 4% safe withdrawal rate.

The main difference is that you have to save much less than people on other forms of FIRE who are going for full early retirement with a good standard of living after the magical retirement day.

The defining characteristic of the Lean FIRE approach is frugality. People that reach for Lean FIRE tend to get there by being very careful with their outgoings and by pinching pennies.

Achieving Lean FIRE is generally well within the means of people with medium incomes.

A 20-year-old Lean FIRE investor aiming to retire at 50 would only need to regularly invest 36% of their required retirement income over the 30-year time frame to reach their goals.

That would be £600 a month for a £20,000 required retirement income, using average stock market compounded returns.

But there are also people with very high incomes that seek to achieve this goal who can be happy with a basic lifestyle in retirement. For them, it might be a case of saving 50%+ of their salaries and FIREing in just a decade or less.

Other solutions involve driving your required early retirement income down by planning to move somewhere cheap, like a Northern town or even another country.

Or sack off the main cost of living – housing – entirely, and live life on the road in a campervan, Scooby-Doo style.

However, for most people, Lean FIRE probably means sacrificing too many things. Is it possible to retire early and not live on the breadline?

#4 – Fat FIRE

If Lean FIRE is the frugal path, then Fat FIRE is the polar opposite. This is the plan you should be following if you plan on being a big spender in retirement.

Fat FIRE allows you to live in the most expensive cities in the world, retire with a big house, give your kids and grandkids lavish private educations, travel when and where you want to, drive a nice car, dine out at nice restaurants, and support your parents or your kids if they ever need help. In short: proper, fulfilling retirement.

Once again, the basic FIRE principles apply – the difference being that you will need a much bigger net worth to be able to retire.

If you’re planning on spending £100,000 a year or more in retirement and living a full and activity packed life, you’d need at least £2.5m stashed away to be able to retire on the 4% safe withdrawal rate. That is a lot of money you’d need to accumulate.

If you feel you need a lavish retirement, you’re probably not the type to penny-pinch and clip coupons for 30 years in order to get there.

For this reason – coupled with the fact that spending cuts can only go so deep before hitting bone – you will need to focus on growing your income instead.

To get there fast, a normal job isn’t going to cut it – for Fat FIRE, you’d need to be a highly paid professional or business owner (or have several lucrative side hustles).

As for how much of your income you’d need to set aside to Fat FIRE: to live a lifestyle based around your current income level, investing around 30-40 percent of your current income over 30 years, or 70 percent over 20 years, should be enough as a general rule of thumb. These are big numbers – if you want to live more lavishly in retirement than your current income would allow (if you stopped saving), you’re probably being unrealistic!

You can get to Fat FIRE faster if your business or side hustles will continue to make you money after you’ve retired.

It might be that you don’t need to bother with investing at all – just focusing all efforts on building up a successful business to be your legacy might be a faster (if riskier) solution.

Alternatively, you can get to Fat FIRE the slow way by first getting to Lean FIRE, and then continuing to work and invest for another couple of decades.

Say that Lean FIRE to you is £500k, and Fat FIRE is £1.5m. The first £500k will be by far the hardest part of the journey.

Money breeds money and turning £500k into £1.5m CAN be done, for those willing to wait.

By this point, your monthly contributions will likely pale in comparison to the huge, compounded returns you’re getting from the invested funds, and you may decide to stop making contributions at this point and just let the market take care of your pot’s growth, Coast FIRE style.

£500k turns into £1.5m in just over 20 years at an 8% annual rate of return, assuming inflation of 3%.

Maybe you aim for Lean FIRE, but keep open the option to switch to Coast FIRE mode and enjoy a semi-retirement with a more laid-back part-time role for 20 years before retiring in full Fat FIRE glory.

#5 – The Middle Ground – Regular FIRE

We’re aiming for a middle ground – regular FIRE, somewhere between Lean and Fat. We aint living like paupers in retirement, but nor do we feel the need to work our butts off to get to multimillionaire status.

Though if Fat FIRE were to come within our reach, we may decide to go grab it.

For now, we’re aiming for the middle ground by first securing that Lean FIRE baseline and then building from there for a few more years to make our early retirements comfortable and fun.

FIRE to us is full retirement before 50 at the latest, so Barista and Coast FIRE are not ideal for us.

We want our freedoms ASAP, but we’re willing to work a little longer to get a freedom that involves a few home comforts!

Which FIRE route are you taking? Join the conversation in the comments below!


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What Percent Of Your Income Should You Invest For Financial Freedom? | Planning For FIRE

What percentage of your income are you saving or investing each month? If you’re like most Brits, it won’t be anywhere near enough.

We know this because the average Brit retires at age 64. If they were saving properly for retirement, we’re betting FEW would willingly choose to limp on into their mid-60s.

But how much of your income do you need to be saving each month to reach your goals?

In this article we’ll assume that your goals are a comfortable retirement, on your terms, starting sometime in your 40s or 50s.

We’ll look at what the financial gurus recommend, we’ll look at what most normal people are doing, and finally what you need to do to set yourself apart from the slow-laners who follow the mainstream media narrative.

It might even be that the whole notion of saving a percentage of your income is flawed. Maybe there’s a better way?

Alternatively Watch The YouTube Video > > >

What Percent Of Their Income Do Other People Set Aside?

The average UK citizen saved just £2,292 in 2020, according to Charter Savings Bank.

The average salary in 2020 was just under £26k, so from this we can calculate that the average person saves around 11% of their job income, after taxes and other pay-slip deductions.

We also know that the average person retires at 64 – the average retirement age is expected to keep climbing, and will probably be well into the 70s by the time our generation gets to retire.

If we know the average person currently retires at 64 and the average person saves 11% of their income, it seems that saving 11% is not going to be good enough for you.

For you to reach financial freedom before your 70s, you’re going to need to be putting aside more than the average Joe.

Though to be fair, the majority of these savings will not be invested in wealth building assets – instead, they will have been left to fester in a low interest bank savings account.

But as we’ll soon calculate, even when properly invested, 11% is still far too low.

We’re also very sceptical of these savings statistics – far too often, what people describe as their “savings” are really “delayed spendings”.

What they count as savings today goes on fixing the car tomorrow. Our definition of saving is putting that money aside and never touching it again until retirement.

Savings % By Age

You’d think that when you’re younger it would be harder to save or invest a high percentage of your income, because you probably don’t have much of it. Any money you bring IN goes straight OUT again on rent.

There’s some truth in that – but people in their 20s actually save above the national average, probably because they don’t have families to pay for:

Savings % By Age (Sources: ONS, & Charter Savings Bank)

People in their 30s are able to save the most, as most people are established in their careers by this point and raking in the big bucks.

For whatever reason, saving tails off once people pass the age of 50 – perhaps they are putting money into pension accounts as well that is not reported in this data. But still, these numbers are very low.

Is Anyone Investing Their Savings?

Of course, to get anywhere in this world, you need to be INVESTING your savings, not stashing them in a bank account.

Cash accounts earn less than nothing due to inflation and low interest rates. The stock market on the other hand is widely quoted as having an average return of 8% since records began.

A person who saves 10% of their after-tax income in a Cash ISA will fare FAR worse over time than a person who invests 10% each month into a Stocks & Shares ISA.

But the most recent data tells us that for the tax year ending April 2019, just 22% of ISA subscriptions were Stocks & Shares ISAs, compared to 76% for Cash ISAs.

What Do The Financial Gurus Say?

JL Collins, author of The Simple Path To Wealth, recommends you aim to save or invest a full 50% of your income.

While he admits that he hasn’t always been able to do this himself, he credits the setting of this target as having been essential with helping him to become financially independent while still young.

Andrew Craig, author of Live on Less Invest The Rest, suggests people should invest 10% of their income as a minimum, and anything over and beyond that will also be beneficial.

We find this a bit unambitious personally, though we do respect most of what this guy says. 10% is simply no good for retiring before your 60s. But it’s better than nothing.

Most commentators agree that the answer lies somewhere between 10 and 50 percent. Some in the FIRE community take it to the extremes and invest over 70 percent of their incomes.

Some are doing this by living like tramps, while others are able to set aside so much by pursuing a higher income. Let’s now look at how hard it is to increase your savings percentage.

Is Saving X% Really So Hard?

The average UK citizen who earns £26k is in the top 3%, richer than 97% of the people on Earth. So in theory, saving money really shouldn’t be that hard.

The reason you may not feel this well-off is though is because you are used to a certain lifestyle and standard of living.

You choose to live in expensive accommodation. You choose to have the big TV, ten monthly subscriptions and a new car on finance.

We’re not saying any of this is a bad thing – we’re just pointing out that in this country, saving for our futures is often a choice that comes second place behind our lifestyle priorities.

Saving a higher percentage gets far, far easier the higher your income is. This is because the range of money that most people need to live on is quite similar, while incomes can vary wildly.

You probably only need around £20,000 after tax income to live a moderate lifestyle in most cities – anything earned over this could in theory go straight into your early retirement fund.

You’d probably find that moving from saving 10% of your income to 20% is easily done if you were to get a promotion or move jobs.

Assuming these numbers are all after tax: 10% of a £25,000 income is £2,500. 20% of a £30,000 income is £6,000.

If you’d just moved up the career ladder from £25k to £30k, your salary would be up by £5,000k. But your savings per month only need to go up by £3,500 to double your percentage of income saved.

You just got an extra £5k of income, so doubling your savings rate in this scenario is EASILY achieved. So long as you don’t succumb to too much lifestyle inflation!

But if you are not able to increase your income, the only option left to you if you want to increase your savings percentage is to cut back.

But to reach anything like 50%+ and join the top ranks of the FIRE community by only cutting your outgoings, you’d have to make some radical lifestyle changes.

But let’s assume you don’t want to live on rice and beans for the rest of your working life. What’s a more realistic amount to be saving each month?

How Much We Think You Should Invest Each Month

The correct answer is, you need to work backwards from your target wealth goal, choose a timeframe that you can stomach, and aim to save and invest at least the percentage that this calculation tells you to.

For both of us, the goal is a minimum £500,000 per person in a household.

This would bring in an annual income per person of £20,000, using the famous 4% Safe Withdrawal Rate rule – what we think is enough for one person to live a basic lifestyle.

Say you start investing at age 25 and your salary is £30,000 after tax.

Let’s further assume that the absolute maximum you’re willing to tolerate slaving away for would be 15 years, gaining financial independence at age 40:

Example Scenario: Required Savings % To Retire Either 15 Or 25 Years From Now

You would have to invest 57% of your income over this timeframe to reach this goal, with compounded average stock market returns.

While the same person allowing themselves an extra decade to reach their goal, with a target freedom date at age 50, need only save 21% of their income.

Alternatively, the correct answer is as simple as; “if your goal is financial freedom, you need to save as much as you possibly can, because freedom ain’t cheap”.

As a footnote to this rule, you may believe you are already saving and investing as much as you possibly can. But are you really? Or are you in fact just investing as much as your lifestyle allows you to?

The Slow Lane Mindset

Unfortunately, the rot of “the 10% savings rule” has spread widely across the mainstream media.

Next time you see a financial expert on the BBC they’ll likely quote this number like it’s some kind of gospel truth.

This doesn’t help anyone though and is just a form of talking down to the audience.

Quite a number of other outlets including Experian are now citing the 50/30/20 rule, which is an improvement.

It suggests spending 50% of after-tax income on essentials, 30% on non-essentials, and leaving 20% aside for your savings pot.

But to us this still lacks aspiration. Especially while you are in the first half of your investment journey, how much you can save each month is far more important than your return on investment.

And yet we see investors worrying about the difference between an 8% and an 8.5% return, who are only depositing a few quid a month.

As we showed before, investing around 20% of your after-tax income is probably OK if you want to retire in 25 years’ time.

But who wants to be forced to work for 25 years?

25 years is long time. Every percentage that you can edge that savings rate higher will shave years off your career.

Switch To The Fast Lane Now

Also common in the mainstream media is a total disregard for investing.

Newspaper articles about home finances will only quote the latest Cash ISA interest rates; the BBC’s coverage of individual investors paints us all as uninformed chancers who jump onto bandwagons like GameStop and Crypto.

But most of the viewers of these shows and readers of these magazines are stuck in the slow lane of cash savings – the media are just talking to their audience.

You need to switch into the fast lane of investing, and we’re not talking about some scary Wild West where you gamble your savings on a single stock or the latest fad.

A “Do-It-For-Me” investing platform like InvestEngine invests into diversified funds FOR you. It’s as simple as answering a few questions about your risk tolerance and target time period, and hey presto – you’re delivered a portfolio of diversified funds covering stocks from around the world, both big and small, with some precious metals for protection against downturns. And the total fees are tiny at just 0.25%!

Find your way to InvestEngine via the link on the Offers Page and they’ll give you a £50 bonus upfront!

What percentage of your income do you set aside for early retirement? Join the conversation in the comments below!


Featured image credit: Eugenio Marongiu/

Also check out the MoneyUnshackled YouTube channel, with new videos released every Wednesday and Saturday: