Hey everyone, Eric from Time to Retire here.
So today I want to talk about something that
has people terrified. I get messages on my website
occasionally from people. Now here's what I've
got here. So it says, Eric, I'm 50 years old
and I'm separated from my partner. I've got zero
in my work pension. I've got no ISAs. I've got
nothing but debt. Is it over for me? Now this
is the kind of common belief that if you've not
started saving by the age of 30 then you've missed
the boat when you hear about compound interest
and you think well i don't have 40 years for
my money to grow therefore i must be finished
now i'm here to tell you that that is absolutely
complete rubbish however You do need to be realistic.
You can't use the same strategy as a 20 -year
-old. You don't have the time to make the mistakes.
You don't have time to just figure it out. You
need a strategy. It's going to be pretty aggressive
and mathematical. Quite frankly, it can be painful
if you approach it with the wrong mindset. So
today I'm going to break down what I think you
need to go from zero at the age of 50 to a six
-figure pension pot by the age of 67 simply by
becoming a spending control machine. Now for
many the state pension will not be enough. How
many people in the UK think It's fine. The government
will look after me. I've paid my national insurance.
But let's look at the numbers. The full new state
pension is currently less than £12 ,000 a year.
Now, can you live on less than £12 ,000 a year?
Think about your council tax. Think about your
energy bills, which seem to go up every time
you blink. Think about food prices. Same. If
you rely solely on a state pension, you're not
really looking at a retirement of holidays in
Spain and playing golf. You're looking at a retirement
of heating or eating. Now, this is a harsh reality,
but there is good news. Let's say you're 50.
In the UK, state pension age is currently rising
to 67. That means you've got 17 years. Now, 17
years is not a lifetime. But in the world of
finance, 17 years is enough time to build a fortress.
If, and only if, you stop bleeding money. The
biggest problem for 50 -year -olds in the UK
is not usually income. Usually at 50, you're
potentially earning the most you've earned in
your career, probably the most you ever will.
The problem is lifestyle creep. You feel like
you deserve nice things. You work hard. So what
do you do? You finance a car. The UK is addicted
to PCP finance. Personal contract purchases.
It is the single biggest destroyer of wealth
I see. Now, you see your neighbour Dave. Dave's
50. Dave drives a brand new Audi Q5. You think,
I need a new car too. So you sign a contract.
You're paying £450 a month for the car. Then
you pay your insurance. Then you pay for your
fuel. That £450 a month is not just a car payment.
It's your retirement fund leaving your bank account
and driving down the motorway. So let's run through
the maths. Now, if you took that £450 and invested
it... into diversified index fund return into
an average of seven percent a year and in 17
years that single car payment would be worth
a hundred and sixty six thousand pound now ask
yourself this would you rather drive a shiny
new car now for three years or have 166 000 pound
in cash when you retire now at 50 you don't need
to keep up with dave next door Buy a used Ford
Fiesta, buy a Toyota Yaris, drive something that
gets you from A to B, costs you nothing. Now,
let's talk the small stuff. Coffee. Now, people
laugh and say, Eric, enjoying a coffee is not
why I'm broken. Well, in isolation, you're right,
but it's never just a coffee. It's the meal deal
culture in the UK. It's so easy. You go into
Tesco or Sainsbury's or Boots and you grab a
sandwich, a snack or a drink. £3 .50, maybe you
go to a Pret or a Costa. It's £8 or £10 for lunch.
Let's say you spend £10 a day on convenience
food and coffee during the work week. That's
£50 a week. That's £200 a month. Then let's talk
about the pub. You're out for a few pints on
a Friday, maybe out for Sunday roast. That's
another £50 a week easily. Now we're at £400
a month on food and drink that you've consumed
or forgot about instantly. Now at age 50, zero
savings. You don't have the luxury of these conveniences.
It's completely possible. to fall in love with
the packed lunch. Meal prep isn't just for bodybuilders.
It's for future millionaires or normal retirees.
Making a sandwich at home costs about 50p. Buying
it costs £4. That's an 800 % markup. Now, if
you stop that convenient spending, you reclaim
£300 to £400 a month. You'll say, Eric, that
sounds miserable. Well, you know what is miserable?
Being 70 years old, unable to afford to turn
the heating on in January. That is miserable.
Now, making a sandwich is just being smart. Now,
let's talk about a self -invested personal pension.
So when you earn money, the government taxes
you. But the government wants you to save for
your retirement. So they'd have to support you
when you get older. So they offer you a bribe,
and it's called tax relief. Now, if you're a
basic rate taxpayer, every £80 you put into your
pension, the government adds another £20. Instantly,
that's a 25 % return on your money before you
even invest it in the stock market. Now, if you're
a higher rate taxpayer, earning over £50 ,270,
then it's even better. claim back even more tax.
So let's go back to our savings. We cut the fancy
car, £450 saved. We've cut the meals and the
pub trips, £350 saved. We've cancelled Sky Sports
with Netflix. We used Freeview instead. We've
saved another £50. Now that's £850 a month, found
simply by controlling spending. But because of
the tax relief, You put that £850 into a self
-invested pension. The government tops it up
to £1 ,062 going into your investment pot every
month. Now, this is the part you need to remember.
If you're 50 and you start with zero, you need
to start living frugally. You embrace that minimalist
lifestyle. You invest that £1 ,062 a month, which
only costs you... 850 out your net income. You
invest it in a low -cost global index tracker
fund like the FTSE Global All Cap. We assume
a historical average rate of 7 % after inflation
and by the time you're 67 you have approximately
£394 ,000. Nearly £400 ,000 plus your state pension
of £11 ,500 a year. Now, if you're using pension
drawdown then, you can continue to invest that
pot even after you retire. So let's say you decide
to take £20 ,000 a year from your £400 ,000 of
private pension, plus £11 ,500 from the state
pension. Now, that's a total retirement income
of £31 ,500 a year. Now, that's more than many
people earn working full -time, and you did it.
all in 17 years, simply by deciding that financial
freedom was more important than a leashed Audi
or a Pret sandwich. So no, it's not too late,
but the window is closing. Every month you wait,
that final number drops. If you wait until you're
55, the maths gets much, much harder. So you
do have to become a bit obsessive about your
outflows. Print out your bank statement from
the last three months. Get a highlighter pen.
Highlight everything that was not essential for
your survival. It's going to hurt. You're going
to feel embarrassed by the amount of money that
you've wasted. And good, use that emotion. Channel
it into your SIP, your Self -Invested Personal
Pension. Channel it into an ISA. You can retire
with dignity then. But you need to start today.
See you guys next time.