If you are planning to live the life you have now for the next 50 years you simply cannot predict how much money will be enough. And that is why we are not aiming for early retirement but instead for financial freedom!
Imagine: if a person aims to retire at 45 how will they ensure they have enough savings to last 35 or 40 years (at current lifespans)? No one can predict the future, especially with Brexit negotiations starting at some point.
Even something as distant-seeming as global warming could have a massive impact on someone planning for early retirement. Properties may be affected by unforeseen events simply not budgeted for.
What does financial freedom mean?
For us financial freedom means releasing ourselves from the need for money as much as possible so that we can live a self-sustainable life. By removing ourselves from a need for finances we can successfully prepare ourselves for a future with little or no income. Inflation and major financial market changes will therefore not impact our lifestyle.Financial freedom means releasing ourselves from the need for money and being self-sufficient Click To Tweet
Why not early retirement?
Retirement is considered as the act of leaving one’s job and ceasing to work.
Image you aim to retire at 45. Research suggests a household in the UK needs £26,500 a year before tax and National Insurance are deducted to live comfortably. (As a comparison the current basic rate of pension for someone over 65 in the UK is £6,204 a year) But you buy clothes, have holidays, shop at supermarkets and don’t think too much about having a meal or two out per month. For 20 years you would need to cover a gap averaging well over £16,000 or more as a couple. Going down to £10,000 after 65.
So you would need to save over half a million pounds per person (at the most basic rate). This is not including any mortgage costs/rent etc. Now consider the rise in cost of living over the next 40+ years. You would need to add that to the cost of any savings you were aiming to make.
Between 2010 and 2014, the cost of living, as measured by the Retail Price Index, rose by a total of 19.8%. Source: Office for National Statistics
So we are talking massive numbers that we need to save. And this is not even taking into account that most people can’t save such amounts and don’t have assets they can release such as property or shares.
For me to save £500,000 would take over 25 years (thinking about putting 40% of our income in savings: £20,000 per year). For us (as a couple) to save enough for early retirement would take 50 years! We would miss our early retirement window! (This is without considering compound interest which may shave off a few years or cover cost of inflation for a few years!).
Such savings also wouldn’t provide any safety net for unexpected issues such as the cost of medical support or children’s university fees or a wedding.
Financial freedom as an alternative
Financial freedom gives us the opportunity to prepare ourselves for the future more securely and more realistically in terms of our savings aims and expectations.
We are training ourselves up in the skills and experiences we need so we don’t have to rely on others to support us. Instead of getting someone else to do our bathroom, we can tile and plumb it. Instead of buying food from the supermarket we can grow it and store it. You get the idea 🙂
If you follow me on Instagram you will have seen us testing out new skills already!
We also have an aim to save £15,000 to £20,000 per year depending on incomes (MrCR works as a contractor so day rates can dip and rise regularly). This is to go towards our savings pot for a property which we hope to get and renovate in 5 years. Once we have a property and have settled in we should be able to sustain ourselves on minimal income.
As such we will not need to continue working at such a pace and can go down to part time and spend the rest of the time doing what we need to do to thrive in our self-sufficient way! We don’t need much. We have no requirement for a flashy lifestyle so we can subsist on very little and and enjoy it!
Once we have produce and skills we also hope to partake in bartering systems (which we are doing already in our little cottage by trading our homegrown produce and jam for firewood from our neighbours!).
Acknowledging the risks
Of course, we might not be able to grow our own vegetables forever but by living frugally we can continue to amass savings while we work. I am also currently paying over 5% of my salary per month into my pension. We can start making use of this from the age of 55 if I choose to. I’ll talk abut this in more detail in a future post!
I don’t know how much money we will need at this point in time. But I do know we need to start saving for our own property. Until we can have a property free of rent or mortgage we will never truly have financial freedom.
By learning how to do everything ourselves and living a lifestyle which does not rely on convenience purchases we aim to reduce our cost of living to a minimal proportion needing only to cover basics such as utility bills.
I will keep you up to date with my progress but I would love to know your thoughts on our plans.
Do you save for early retirement and how do you quantify the savings you will need to live comfortably?
Do you aim for financial freedom by learning skills to become self-sufficient?
Let me know in the comments box below!