This depends on just two things:
· How much you spend
· How much you save
Spending
Your target is “25 x spending”. But how on earth do you know what your retired spending will look like? You’re not going to have the same costs as a younger person paying a mortgage, needing transport to work, with kids at home, paying for childcare, etc.
Instead you are going to have more leisure time on your hands, so does that mean you’ll spend more on hobbies and travel?
Fortunately there is government research on this that we can lean on. They’ve developed the Retirement Living Standards to give people planning their retirement some hard numbers to work with. This sets out three tiers of spending, going from a basic lifestyle up to a comfortable one.
They also give figures for couples versus people living alone, and another set for those living in London.
Currently they think that each person living as a couple (ie the most common situation) needs £11,200 for a minimum lifestyle, £21,550 for a moderate lifestyle, and £29,500 for a comfortable lifestyle.
I like to talk in terms of “per person” because all of the savings allowances are set on a per person basis. It’s what I do - my partner and I run our investments side by side. SIPPs and ISAs are necessarily per person.
You can drill deeper into what those lifestyle tiers mean by looking at the Retirement Living Standards website.
If you choose one of those tiers as your target, that means that you’re trying to build an investments pot of £280,000, £538,750, or £737,500.
This is in stark contrast to the answers people give to the question “how much do I need to retire?”. They usually over-estimate, by a lot. They’ll typically say £1 million, £2 million, or £5 million. That’s because we have very little point of reference - we can’t visualise what life (and thus spending) will be like in any detail, and neither can we visualise what sort of multiple we need in order to fund the spending.
Even building a pot of £300k-£700k looks daunting, but you have help in the form of the power of compounding, and a boost from that free money from the government into your pension. This is why we shouldn’t make things harder for ourselves by not making best use of pensions.
A play with a compound interest calculator tells me that to grow a pot of £500k in 15 years will require you to invest £1,300 per month in a pension. The exact figure depends what growth rate you assume, and it gets a bit more expensive if you’re young enough to need some in a bridge fund, but this gives you an idea of the broad range we’d need to aim for, to get to retirement from a standing start in 15 years.
Remember, that’s for someone planning to spend somewhere in the middle of the top two lifestyle tiers. Your priorities may be different. If you are miserable at work, experiencing burnout, you find a simpler lifestyle quite appealing. This has attracted the label LeanFIRE.
There are different approaches to this, because people’s lives and priorities vary. Some people get partway along to this target and want to downshift to a less stressful job, or to work part-time, to enjoy life more. These approaches are known by some as BaristaFIRE and CoastFIRE.
At the other extreme, some people aim for a rich, high-spending lifestyle in excess of what the RLS find that most retirees do. This is known as FatFIRE.
At the point where you are able to choose between retiring now, or continuing to work hard in order to get a more lavish lifestyle, it becomes a tradeoff between time and money.
Often your health and family situation will be the deciding factors over your decisions on how long to continue working.
Earning Power
Clearly, the other factor is how much money you can spare to invest. This depends on your earning power, and how spendy you are with your earnings.
It would be easy for me to glibly suggest that you earn more, but in the real world people are usually going as fast as they can already. There is much made of “side hustles”, but the fact is that your earning power is much greater in your field of expertise, your day job.
Probably the easier way to boost your savings rate is to look at your spending. We slip into comfortable habits, and it’s easy to adopt spending habits which aren’t strictly necessary for our happiness. Little tweaks can mean big payoffs.
One way of working up the enthusiasm to get serious at cutting the waste is to look at projections of the results. At this point I’d have a play with fireplanner, changing the savings figures to see when it thinks you could retire in different situations.