I have one problem with the FIRE approach to early retirement – it takes way too damn long!
Using the Early Retirement Calculator if we invest £1k/month it’ll take 22 years to retire early.
Is this really considered early retirement? Is there another way to retire early in say 10 years?
Stock market investing is a way of investing so that you can withdraw passive income from it.
However, this way takes a long time; from 20-30 years, depending on how much you invest.
Another way is to build/buy assets that give you regular income e.g. business, property, etc.
However, these strategies have a lower chance of success, unlike stock market investing.
In this article I talk about the pros and cons of the FIRE approach to achieving early retirement.
I also talk about the other means to early retirement such as business and property investing.
Finally, I discuss what my approach would be and further resources to find more information.
What is the FIRE Approach to Early Retirement?
For those not familiar with the FIRE approach to early retirement, it goes something like this:
The first step is to figure out how much monthly income you would need in early retirement.
Let’s say you spend around £3,000 a month and you will need the same income in retirement.
That means that you’ll need an annual income of around £36,000 (£3,000 x 12) in retirement.
This is assuming that you will not be paying any taxes on this income, such as through an ISA.
You then take this amount and multiply it by 25 (based on the 4% Rule) to get £900,000.
This is then the size of the pot that you would need to have in order to withdraw 4% from.
In other words: 4% of £900,000 gives you £36,000 a year, equivalent to £3,000 a month.
So then the question is: how long would it take me to accumulate £900,000 (in my ISA)?
The answer to this is based on a number of variables, as I explain in the paragraph below.
How Long would it Take to Accumulate £900,000?
There are a number of variables that we need to fill in in order to figure this out.
Let’s assume that you’re starting off with a pot of £0 – you don’t have anything in your ISA.
Let’s assume you’re investing into a global index fund with average returns of 10% a year.
Finally, let’s assume that you’re contributing a lot into your ISA – say £1,000 a month.
We plug the figures into an Early Retirement Calculator, as well as your starting age and year.
As you can see, it would take around 22 years to accumulate an investment pot of £900,000.
For me this is bitter sweet: 22 years means working less than 40 years but it’s still a long time.
This is assuming that you’ll be contributing £1,000 every month for 22 years straight.
This is assuming that you’ll be getting 10% average returns on your investments every year.
This is also assuming you’ll be happy with £3,000 monthly income after 22 years of inflation.
Option 1: Property Investing for Early Retirement
At the end of the day, your goal is to generate £3,000 in reoccurring income from your assets.
Stock market investing is just one approach – one which requires you to accumulate £900,000.
However, another approach to generate this amount of income is through property investing.
Let’s say that you purchase an investment property that gives you a cash flow of £300/month.
Cash flow refers to your rent received from tenants minus your mortgage and other expenses.
That’s 10% of the required income. Let’s say you purchase an investment property each year.
That means you can now achieve your required income in 10 years as opposed to 22 years.
You may want to accelerate this path to 5 years and purchase 2 properties per year instead.
Unfortunately property investing takes lots of money to get started, especially if on your own.
However, this is an example of how to achieve the same goal using another investment asset.
Option 2: Building/Buying a Business for Early Retirement
Another approach to generating £3,000 per month is through some sort of side business.
One approach is to buy a business that generates this income – like purchasing a property.
However, the approach that most people go for is to build their own business from scratch.
You can start a business doing pretty much anything: blogging, youtubing, consulting, etc.
With the right business model, it is very possible to reach this income level in just a few years.
However, the problem with starting a side business is that there is no guarantee of success.
While some achieve significant income from their business, unfortunately most people don’t.
There is so much competition, especially online, it can be hard to stand out from the crowd.
However with perseverance and luck, you may be able to achieve your goals in a few years.
This is another example of how you can achieve the same goal using the business approach.
What is the Best Early Retirement Approach to Take?
For me, the approach I would take is a bit of both stock market investing and side business.
I know that if I contribute £1,000 a month into my ISA, I can retire within the next 22 years.
This may even be less if I take my workplace pension into account, so maybe say 15 years.
However, 15/20 years is still a long way to go, so in the meantime I’ll work on my side hustle.
I am hoping that my business would allow me to retire in 5-10 years, but it is not guaranteed.
I may or may not create a business that generates that sum of reoccurring monthly income.
Best case scenario: I create a business that allows me to retire in 5-10 years instead of 20.
Average scenario: I create a business that allows me to retire in 10-15 years instead of 20.
Worst scenario: I never end up creating a successful business and end up retiring in 20 years.
Which ever happens, I can be confident that I’ll be able to retire comfortably in 20 years!
If you’re interested in the fast track to early retirement, check out: The Millionaire Fastlane.
In the book, the author talks about how he started a business, sold it, and retired in 10 years!
To find out more on investing and retirement, check out my investing and retirement articles.
I talk about early retirement strategies, which funds to invest in, and which accounts to have.
Are you on your way to early retirement? Are you investing? Let me know in the comments!
