JACOB Aldridge may only be 40 years old, but he is already planning to retire and retire.
He is one of a growing army of people in the so-called FIRE movementwho are savings hard at a young age so they can start retire early.
FIRE stands for Financially Independent, Retire Early – it’s a movement that started in America in the early 1990s, but has become popular elsewhere in the world.
Jacob, who currently lives in Australia and works as a business consultant, said: “I first heard about FIRE in my early thirties – I found a blog about financial independence and it opened my eyes to what was possible.
“I was immediately excited by the thought of working only by choice—or possibly never working again—decades earlier than I had originally planned.
“If everything goes perfectly, I can retire the day before my 42nd birthday.”
The idea behind FIRE is that you save and to invest a higher share of your income at a young age so that you can become financially independent and retire earlier.
Research by the money transfer site Remitly has found that online searches for “FIRE method” have increased by 46% this year alone.
It’s an understandable ambition given that people are working longer than ever – today’s state pension age in the UK is 66 and will only increase.
And more 60- and 70-somethings have to work longer than they expected just to pay the costs bills.
Unfortunately, for many people, the FIRE aspiration will be out of reach – but that doesn’t mean you shouldn’t save for retirement if you can afford it.
Make sure you do your homework and check how much you have to put aside – and make sure you can afford it, you shouldn’t let yourself down now.
Here are Jacob’s top tips for all the FIRE wannabes:
Do your math
Calculate what you expect to spend in retirement to give you an idea of how much you need to save. Do not forget to factor into a budget also for unexpected expenses such as a broken boiler or car repairs.
Many FIRE savers operate on the “4% rule” – this is where you divide your annual expenses by 4% to get your “retirement number”, the amount you need to set aside to last.
So, if your annual expenses – mortgagebills, groceries, holidays and everything else – were £15,000, your retirement number would be £375,000, and you’d expect this to last about 25 years (though it’s important to factor in inflation).
Jacob is a big earner and as he is self-employed his income changes from month to month but he aims to save around £2,000 a month.
Some savers also have assets such as a business or buy-to-let property that can provide income even after retirement.
Other FIRE savers are switching to part-time or freelance work rather than fully retiring.
Start investing
Savings Rates are at rock bottom, so it’s hard to grow your money if you keep it in the bank.
rising inflation also means that the “real” value of your money will be eroded away, as the same amount will not reach as far as it used to.
For FIRE savers this means that you have to invest.
Jacob said, “Start small. put a shares and share ISA and once you take the first step, it gets easier.”
He used forums to get advice, but you can also seek help from a professional financial planner.
It is important to keep in mind that there are no guarantees in investing – and the value of your money can fall rather than rise.
Experts recommend dripping small amounts rather than investing a lump sum and making sure you leave your money alone for the long haul.
Apps like Nutmeg and Moneyfarm can help you choose cheap investments.
Factor in other savings
You’re not all alone when it comes to saving for retirement — although you may have to go it alone for a while if you hang up your boots early.
Remember that from the age of 66 you will also receive a state pension and this is currently around £185 a week.
If you saved in a private or workplace pensionyou must have access to this from age 60 (although it could be sooner or later so check your schedule)
Save money in a Lifetime ISA is a good choice for many people.
You can set aside up to £4,000 a year and get a 25% supplement from the government, as long as you only use the money in retirement or to buy your first home.
If you saved £4,000 a year from 18 to 50, you would have £128,000 (excluding any interest on top) and would get a government bonus of £32,000.
If you use the money for retirement, you won’t be able to access it until age 60 or you’ll lose the bonus.
You will have to make sacrifices
Jacob said it’s important to think carefully about how you want to spend your money.
Create a spreadsheet to help you budget and look for areas to cut back.
But make sure you spend some money on nice things and small luxuries — it’s not about robbing yourself, Jacob said.
“It’s not all rigid to save 100% of the time, but the challenge is to spend money where it matters to you — and not spend it mindlessly because everyone else does.”
That said, this extreme way of saving isn’t easy and you’ll have to be willing to make some sacrifices.
Jacob said it was sometimes too hard to watch friends buy new luxury cars and big family homes: “It’s easy to feel like I’m missing out on riding a beater and cooking in a 20-year-old kitchen.”
Jacob said he was taking on extra work like a sideshowfreelance role or part-time employment in addition to your day job can help you increase your savings.
If you don’t want to save every extra penny, consider making some compromises.
For example, you could work part-time instead of fully retiring, or, if you had dreamed of retiring at 40, you could reduce this to 50 to reduce the amount you have to set aside.
We spoke to a savvy saver who retired at age 35 after tucking away nearly £1 million.
And another FIRE saver is on track to retire at 40 because she goes for months on end without spending a dime.